BANKING SECTOR IN INDIA

DEFINITIONS OF BANK
As per Indian Banking Companies Act - "Banking Company is one which transacts the
business of banking which means the accepting for the purpose of lending or investment of
deposits money from the public repayable on demand or otherwise and withdrawable by
cheque, draft, order or otherwise".
Thus, a bank is a financial institution that accepts deposits from the public and creates credit.
Lending activities either directly or indirectly through capital markets.

EVOLUTION OF BANK
Year : 1770
Event : The first bank of India called Bank of Hindustan was established in the then capital
Calcutta.
Year: 1861
Event: Paper Currency Act was enacted by British Government of India.
Year: 1865
Event: Oldest Joint-Stock bank Allahabad Bank was established.
Year: 1881
Event: Oudh Commercial Bank was the first commercial bank of India. It was the first Bank
of India with Limited Liability to be managed by Indian Board and was established at
Faizabad.
Year: 1895
Event: Punjab National Bank was established. It was first bank purely managed by Indians.

EVOLUTION OF BANK
Year: 1911
Event: Central Bank of India, first Indian commercial bank which was wholly owned and
managed by Indians, was established. It was called First Truly Swadeshi bank
Year: 1921

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Event: The three Presidency banks were-The bank of Bengal (1806), The Bank of Bombay
(1540) and The bank of Madras (1843). The three were amalgamated to form Imperial Bank
of India. These three banks were later merged into one single bank in 1921, which was called
the "Imperial Bank of India."
Year: 1935
Event: Creation of Reserve Bank of India. It was established upon the recommendation of
the Hilton Young Commission.

EVOLUTION OF BANK
Year:1949
Event: Nationalization of Reserve Bank of India.
Year: 1949
Event: Enactment of Banking Regulation Act.
Year: 1955
Event: Nationalization of Imperial Bank of India, which then became the SBI.
Year: 1969
Event: Nationalization of 14 major Banks.
Year: 1980
Event: Banking Companies (Acquisition and Transfer of Undertakings) Act, was passed,
which nationalised six other banks: Andhra Bank, Corporation Bank, New Bank of India,
Oriental Bank of Commerce, Punjab & Sind Bank and Vijaya Bank.
Year: 1991 and reforms there after
Event: Narasimham-1 (1991), M Narasimham-11 report (1998), Dr. Raghuram Rajan
Committee (2007) and P J Nayak Committee (2014).

FINANCIAL INTERMEDIARIES
The institutions that channel funds between savers (surplus) to uses (deficit) agents are caller
Financial intermediaries. They serve as middlemen between savers (lenders, investors,
households) and on (entrepreneurs, business firms). Ex-
I. Commercial banks
II. Cooperative banks or societies
III. Development banks and All India finance institutions (IDBI, NABARD, SIDBI, NHB
etc.)
IV. Regional rural banks (RRB) Pension or provident funds (NPS, EPFO etc.)
V. Insurance companies (LIC, GIC etc.)

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VI. Mutual funds
VII. Non banking financial companies
ADVANTAGES
• Fls help to circulate money in the system.
• They promote the habit of savings.
• They provide the benefit of financial specialist and thus make better investment
decision for their diet compared to a new player.
• They offer the benefit of pooling risk, reducing cost, and providing economies of
scale
• Businessmen easily get loans.
• Promotes new business or facilitates existing business and thereby increase
production of goods 200 services in the economy.
TYPES OF BANKS
There are various types of banks which operate in our country.
Types of banks :
I. Central Bank
Description: It functions as the apex controlling institution in the banking and financial
system of the country. It functions as the controller of credit, banker's bank and also enjoys
the monopoly of issuing currency on behalf of the government . The Reserve Bank of India
(RBI) is the central bank in India.
II. Commercial Bank :
Description : The essential characteristics of commercial banking are as follows: Acceptance
of deposits from public For the purpose of lending or investment Repayable on demand or
lending or investment. Banks Withdrawal by means of an instrument, whether a cheque or
otherwise.
III. Development Bank
Description: It is considered as a hybrid institution which combines in itself the functions of
a finance Banks corporation and a development corporation. In India 'Industrial Development
Bank on India' (IDBI) is the unique example of development bank.
IV. Co-operative Bank
Description: The main business of co-operative banks is to provide finance to agriculture.
The co- Operative banks play a useful role in providing cheap exit facilities to the farmers.
V. Specialised Bank
Description: These banks are established and controlled under the special act of parliament.
Ex :Banks 'National Bank for Agricultural and Rural development (NABARD) established in

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1982, as an apex institution in the field of agricultural and other economic activities in rural
areas.
VI. Indigenous Bankers
Description: The unorganised unit which provides productive, unproductive, long term,
medium term Bankers and short term loan at the higher interest rate are known as indigenous
bankers.
VII. Rural Banking
Description: A set of financial institution engaged in financing of rural sector is termed as
'Rural Banking’. The policies of financing of these banks are designed in such a way that they
play catalystrole in the process of rural development.
VIII. Saving Banks
Description: These banks perform the useful services of collecting small savings. Ex-Mutual
saving sbank, Post office saving, commercial saving banks etc.
IX. Export - Import Bank
Description : Established for the purpose of financing foreign trade. They concentrate their
working Bank on medium and long-term financing. The Export-Import Bank of India (EXIM
Bank) was established on January 1, 1982 as a statutory corporation wholly owned by the
central government
X. Foreign Exchange Bank
Description: These banks finance the foreign trade of a country. Their main function is to
discount, Exchange Banks accept and collect foreign bills of exchange. They also buy and
sell foreign currencies and help businessmen to convert their money into any foreign
currency they need.
TYPES OF BANKING
Banking is described as the business carried on by an individual at a bank. At present, several
forms of banking exist, which give consumers a choice in the way they manage their money.
A. Walk-in-Banking: Consumers walk into a bank to withdraw money or deposit it. It
provides the advantage of face to face connection . Also unlike drive thru and ATM
banking, a person can apply for a loan and invest money during a walk in.
B. Drive Thru Banking: Least popular form of banking today. It is a type of take-out
service provided by without leaving their cars.
C. ATM Banking: its popularity is due to the fact that it gives round the clock access to
bank account. To use it a person must have an ATM card with personal identification
number (PIN) and access to an ATM machine.
D. Online Banking: it allows a person to get on the Internet and sign into their bank.

Presented by Juthika Dey # 4

FUNCTIONS OF BANKS
1. Accepting Deposits:
The most important function of commercial banks is to accept deposits from public
Banks receives the idle savings of people in the form of deposits and finances the
temporary needs of commercial and industrial firms. A commercial bank accepts
deposit from public on various account :
i. Saving Bank Deposits: It is for those who just want to keep their small savings in a
bank and might need to withdraw them occasionally. One or two withdrawals upto
a certain limit of total deposits are allowed in a week. The rate of interest is less
than that on fixed deposits.
ii. Current Deposits: Kept by businessmen and industrialists and those people who
make a large number of monetary transactions on daily basis. Also called short
term deposits or demand deposits. They are payable on demand without notice.
Usually no interest accrues on these deposits because the bank cannot utilize these
deposits and keep almost cent per cent reserve against them.
iii. Fixed Deposits: Also known as time deposits; fixed amount is deposited for a fixed
period of time, payable after the expiry of the specified period. They carry higher
interest. The rates depend upon the length of the period and state of money market;
withdrawn are not allowed before the stipulated date and entails an interest penalty
if withdrawn.
iv. Other Deposits: Banks also provide deposit facilities to different type of customers
by opening different account. They also open, 'Home Safe Account' for housewife
or very small savers.
2. Advancing of Loans: The second main function of the commercial bank is to advance
loans. Money is lent businessmen and trade for short period only.
I. Overdrafts: Customers of good standings are allowed to overdraw from their
current account. They pay interest on the extra amount withdrawn.
II. Loans: Loans are granted by the banks on securities which can be easily disposed
off in the market, e.g. Government securities or shares of approved concerns.
III. Cash Credit: Bank allows his customers to borrow money up to a certain limit
against certain tangible securities as Government securities or shares of approved
concerns etc.
IV. Discounting Bills: It is another important way of giving loans. The banks purchase
bills and immediately pay cash for these bills after deducting the discount
(interest). After the maturity of the bills, the banks get back its full value.
3. Agency Services: Banks provide service to the individual or to the business institutions as
an agent and charge commission for it.
• Collection of dividend or interest on stock and shares, subscriptions and insurance
premium.
• Collection of cheques, bills and promissory notes and receives their payments.
• Buying and selling of securities on behalf of its customers. .
• Acting as trustee or an executor on behalf of its customers in the administration of a
will or of settlement

Presented by Juthika Dey # 5

 • Transfer of funds from one bank or branch to another.
4. Other Services :
• Helps in the transaction of foreign exchange business.
• 'Safe Deposit Vaults'- undertakes the safe custody of valuables and important
documents.
• Undertakes to underwrite loans raised by Government, public or trading corporation.
IMPORTANCE OF BANKS
• Promotes thrift and savings in an economy. The investment of these savings in
productive channel results in capital formation.
• Giving loans to industrial houses and the government.
• Remitting money from one place to another.
• Increase the supply of money through credit creation.
• Provides employment opportunity in the country
• Helps in capital formation in the country. A high rate of saving and investment
promotes capital formation.
• Safety of money and precious items deposited in the bank
STRUCTURE OF BANKING SYSTEM
• The Indian banking structure has a wide and comprehensive form. Apex institutions
in the form of banking institutions are playing an important role in the country.
Banking system comprises from the central bank to all banking institutions which are
functioning and providing financial facilities to any developmental sector like
agriculture, industries, trade, housing etc.
• Apex of Banking institution
• RBI
• IDBI
• NABARD
• EXIM BANK
• SIDBI
• NHB

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 • IRBI

COMPARATIVE ANALYSIS OF COMMERCIAL BANKS &

CENTRAL BANK
Central Bank (RBI)
• Central Bank is the apex bank.
• All commercial banks function under the control of the central bank.
• It does not deals with the general public. It accepts deposits from the commercial
banks and advances loans to them. It is the sole note issuing authority in the country.
• Central bank regulates supply of money besides being the principal source of money
supply in the economy.
• They act as a custodian of forex reserves and manage the exchange rate of the
domestic currency.
• It focuses on growth and stability of the economy.
Commercial Banks
• Commercial banks are the financial institution which accepts deposits from the
general public and offer loans to the people for the purpose of consumption and
investment.
• They only contribute to the supply of money by way of credit creation.
• They deal in the sale and purchase of foreign exchange for the purpose of profit.
• They focus on profit maximisation.
• Public Sector Banks

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• Public Sector Banks are those banks in which majority stake (i.e., more than 50% of
the shares, is held by te government of the country. The words such as "The' or “Ltd"
will not be found in their names because the ownership of these banks are with the
government and the liability is unlimited in nature.
• Public sector banks are classified into two categories further- 1. Nationalised Banks 2.
State Bank and its associates. In nationalized banks the government control and
regulates the functioning of the banking entity however, the government keeps
reducing the stake in PSU banks as and when they sell shares. So to that extent they
can also become minority shareholders in these banks.
• Private Sector Banks
• They are the banks in which most of the equity is owned by private bodies,
corporations, institutions or individuals rather than government. These banks are
managed and controlled by private promoters. Post-liberalisation in the 1990s, banks
such as ICICI, HDFC which got the license. They owing to their improved service
offerings give tough competition to the players in the public sector. Of the total
banking industry in India, Public sector banks constitute 72.9% share while the rest is
covered by private players. As part of its differentiated banking regime. RBI, the apex
banking body, has given license to Payments Bank and Small Finance Banks or SFBs.
This is an attempt to boost the government's Financial Inclusion drive. As a result
Airtel Payments Bank has come up and Paytm Payments Bank Limited shall
commence its operations in May 2017.
Nationalised Banks:
• From 1st February, 1969 the Government imposed control and regulation over banks
by introduction certain provisions in the Banking Regulation Act, 1949
• In 1969, the government under the prime Ministership of Indira Gandhi nationalised
14 Public Sections Banks( PSBs)
• In 1980, the government also took control over 6 other Banks & give them the status
of a nationalised banks.
SBI ( State Bank of India)
• State Bank of India , earlier known as Imperial bank of India was established in 1921,
through amalgamation of 3 Presidency Banks viz, Bank of Bengal , bank of Bombay,
bank of Madras. It was nationalised in 1955, renamed as SBI.
• State owned commercial bank and financial services company.
• SBI maintains thousands of branches throughout India and offices in dozens of
countries throughout the world.
• Headquarters of SBI – Mumbai.
• Government has approved the proposal for merger of – on 15 February , 2017
i. State Bank Of Bikaner and Jaipur
ii. State Bank of Hyderabad
iii. State Bank Of Mysore
iv. State Bank of Patiala
v. State Bank of Travancore.
• On 13 August , 2004- State Bank of Saurashtra
• On 19 July, 2009- State Bank of Indore.
• The Bharatiya Mahila Bank is also now stands merged with SBI on 1 April, 2017.

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1. Accepting Deposits:
The most
ost important function of commercial banks is to accept deposits from public Banks
receives the idle savings of people in the form of deposits and finances the temporary
needs of commercial and industrial firms. A commercial bank accepts deposit from public
publi
on various account :
i. Saving Bank Deposits:
Deposits It is for those who just want to keep their small savings in a
bank and might need to withdraw them occasionally. One or two withdrawals upto a
certain limit of total deposits are allowed in a week. The rate of interest is less than that
on fixed deposits.
ii. Current Deposits: Kept by businessmen and industrialists and those people who make
a large number of monetary transactions on daily basis. Also called short term deposits
or demand deposits. They are payable
payable on demand without notice. Usually no interest
accrues on these deposits because the bank cannot utilize these deposits and keep
almost cent per cent reserve against them.
iii. Fixed Deposits: Also known as time deposits; fixed amount is deposited for fo a fixed
period of time, payable after the expiry of the specified period. They carry higher
interest. The rates depend upon the length of the period and state of money market;
withdrawn are not allowed before the stipulated date and entails an interest penalty
p if
withdrawn.
iv. Other Deposits: Banks also provide deposit facilities to different type of customers by
opening different account. They also open, 'Home Safe Account' for housewife or very
small savers.
2. Advancing of Loans: The second main function
function of the commercial bank is to advance
loans. Money is lent businessmen and trade for short period only.
I. Overdrafts: Customers of good standings are allowed to overdraw from their current
account. They pay interest on the extra amount withdrawn.
II. Loans: Loans are granted by the banks on securities which can be easily disposed off
in the market, e.g. Government securities or shares of approved concerns.

Presented by Juthika Dey # 9

 III. Cash Credit: Bank allows his customers to borrow money up to a certain limit
against certain tangible securities as Government securities or shares of approved
concerns etc.
IV. Discounting Bills: It is another important way of giving loans. The banks purchase
bills and immediately pay cash for these bills after deducting the discount (interest).
After the maturity of the bills, the banks get back its full value.
3. Agency Services: Banks provide service to the individual or to the business institutions
as an agent and charge commission for it.
• Collection of dividend or interest on stock and shares, subscriptions and insurance
premium.
• Collection of cheques, bills and promissory notes and receives their payments.
• Buying and selling of securities on behalf of its customers. .
• Acting as trustee or an executor on behalf of its customers in the administration of a
will or of settlement
• Transfer of funds from one bank or branch to another.
4. Other Services :
• Helps in the transaction of foreign exchange business.
• 'Safe Deposit Vaults'- undertakes the safe custody of valuables and important
documents.
• Undertakes to underwrite loans raised by Government, public or trading corporation.
IMPORTANCE OF BANKS
• Promotes thrift and savings in an economy. The investment of these savings in
productive channel results in capital formation.
• Giving loans to industrial houses and the government.
• Remitting money from one place to another.
• Increase the supply of money through credit creation.
• Provides employment opportunity in the country
• Helps in capital formation in the country. A high rate of saving and investment
promotes capital formation.
• Safety of money and precious items deposited in the bank
STRUCTURE OF BANKING SYSTEM
The Indian banking structure has a wide and comprehensive form. Apex institutions in the
form of banking institutions are playing an important role in the country. Banking system
comprises from the central bank to all banking institutions which are functioning and
providing financial facilities to any developmental sector like agriculture, industries, trade,
housing etc.

Presented by Juthika Dey # 10

Apex of Banking institution

Presented by Juthika Dey # 11

Public Sector Banks :
Public Sector Banks are those banks in which majority stake (i.e., more than 50% of the
shares, is held by te government of the country. The words such as "The' or “Ltd" will not be
found in their names because the ownership of these banks are with the government and the
liability is unlimited in nature.
Public sector banks are classified into two categories further- 1. Nationalised Banks 2. State
Bank and its associates. In nationalized banks the government control and regulates the
functioning of the banking entity however, the government keeps reducing the stake in PSU
banks as and when they sell shares. So to that extent they can also become minority
shareholders in these banks.
Private Sector Banks :
They are the banks in which most of the equity is owned by private bodies, corporations,
institutions or individuals rather than government. These banks are managed and controlled
by private promoters. Post-liberalisation in the 1990s, banks such as ICICI, HDFC which got
the license. They owing to their improved service offerings give tough competition to the
players in the public sector. Of the total banking industry in India, Public sector banks
constitute 72.9% share while the rest is covered by private players. As part of its
differentiated banking regime. RBI, the apex banking body, has given license to Payments
Bank and Small Finance Banks or SFBs. This is an attempt to boost the government's
Financial Inclusion drive. As a result Airtel Payments Bank has come up and Paytm
Payments Bank Limited shall commence its operations in May 2017.
Nationalised Banks:
st
• From 1 February, 1969 the Government imposed control and regulation over banks by
introduction certain provisions in the Banking Regulation Act, 1949
• In 1969, the government under the prime Ministership of Indira Gandhi nationalised 14
Public Sections Banks( PSBs)
• In 1980, the government also took control over 6 other Banks & give them the status of a
nationalised banks.
SBI ( State Bank of India)
• State Bank of India , earlier known as Imperial bank of India was established in 1921,
through amalgamation of 3 Presidency Banks viz, Bank of Bengal , bank of Bombay,
bank of Madras. It was nationalised in 1955, renamed as SBI.
• State owned commercial bank and financial services company.
• SBI maintains thousands of branches throughout India and offices in dozens of countries
throughout the world.
• Headquarters of SBI – Mumbai.
• Government has approved the proposal for merger of – on 15 February , 2017
i. State Bank Of Bikaner and Jaipur
ii. State Bank of Hyderabad
iii. State Bank Of Mysore

Presented by Juthika Dey # 12

 iv. State Bank of Patiala
v. State Bank of Travancore.
• On 13 August , 2004- State Bank of Saurashtra
• On 19 July, 2009- State Bank of Indore.
• The Bharatiya Mahila Bank is also now stands merged with SBI on 1 April, 2017.
Local Area Banks:
• To meet the long standing need of developing a decentralized banking system, the union
budget 1996-97 announced very important policy measure regarding the development of
commercial banking in India, name the setting up of local area banks (LABNKs) as
commercial banks in the private sector.
• Local Area Banks are set up under private sector like a Private Limited Company to cater
to the credit and other financial needs of the local people in a competitive form.
• Like other private and commercial banks the local are banks are registered under
Companies Act 1956.But the banking activities are controlled by the Reserve Bank of
India.
Foreign Banks :
• Indian Government allows foreign banks to operate by registering as a branch office or by
incorporating subsidiary. At present, most foreign banks operate as branches or
representative offices of the parent. RB encouraging foreign banks to become
subsidiaries.
• Branch office: It is considered as an extension of the parent company and therefore is not
considered independent legal entity. The assets and liabilities of branch office are
considered as merged with the parent office.
Subsidiary:
• It has a separate legal status; there is Indian investment, assets and liabilities are also
separate have to set up a separate management in India. Any losses incurred by parent
cannot be offset by subs assets. This is done to protect Indian capital and operations from
external economic shocks.
• It can raises from Indian share market as a separate entity. Till the 1950s they were called
Exchange Banks because they alone transacted most of the import and financing business
of India. The foreign banks are branches of joint stock companies incorporated abroad,
but operating in India. They are foreign in origin, and have their head office located in
their parent country.
• Examples of foreign banks in India are: HSBC, Citibank, Standard Chartered Bank, etc

NATIONALIZATION OF BANKS
What is meaning of Nationalization of Bank?
Nationalization refers to an act of taking an industry or assets into the public ownership. In
context of banks, it means that banks which were earlier in private sector were transferred to
the public Sector by the act of nationalization.

Presented by Juthika Dey # 13

PRE-INDEPENDENCE (1786-1947)
• The first bank of India was the “Bank of Hindustan”, established in 1770 and located
in the then Indian capital, Calcutta.
Following the path of Bank of Hindustan, various other banks were established in India. They
were:
• The General Bank of India (1786-1791)
• Oudh Commercial Bank (1881-1958)
• Bank of Bengal (1809)
• Bank of Bombay (1840)
• Bank of Madras (1843)
• The Imperial Bank of India was later nationalized in 1955 and was named The State
Bank of India.

Bombay region:
i. Bank of India(1906)
ii. Central Bank of India (1911)
iii. Union Bank (1919)
iv. Bank Of Maharastra (1935)
v. Dena Bank(1938)

Karnataka region:
i. Corporation Bank ( 1906)
ii. Canara Bank (1910)
iii. Syndicate Bank ( 1928)
iv. Bijaya Bank(1931)

Bengal Region:
i. United Commercial Bank( 1943)

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Punjab region:
i. Punjab National bank( 1894)
ii. Oriental Bank of Commerce( 1943)

South India Region:
i. Andhra Bank ( 1923)
ii. Indian overseas Bank (1937)
Many major banks failed to survive during the pre-independence period:
• Indian account holders had become fraud-prone
• Lack of machines and technology
• Human errors & time-consuming
• Fewer facilities
• Lack of proper management skills
What were need and objectives of nationalization?
Immediately after independence, the government had adopted planned economy and thus
India embarked on a socialist path with first five year plan launched in 1951. One of the
basic tenets of planned / socialist economy is social ownership of means of production.
Further, the government had some social welfare schemes and needed banking sector support
to fulfill those.
Thus, nationalization was seen as a remedy of many malaises. This includes the following:
1. Banks under government would support the government to achieve its social welfare
objectives by directing funds to needy sectors of economy.
2. Monopoly of the private banks could be ended.
3. Banking could be expanded into all parts of country because of people’s inherent
confidence in government. The banking sector reforms aimed at improving the
confidence level of the public because in those days, most banks were not trusted by
the majority of the people. Instead, the deposits with the Postal department were
considered rather safe.
4. Taking banks to villages could help bridge the rural-urban divide.
5. With nationalization, agriculture and allies activities could be given more funds.
Which was the first Nationalized Bank of India?
First nationalized bank of India was Imperial Bank of India, which was nationalized and
renamed as State Bank of India (SBI) in July 1955 through SBI Act, 1955. State Bank of
India was made to act as the principal agent of RBI and handle banking transactions of the
Union and State Governments. After that, in a major process of nationalization, seven
subsidiaries of the State Bank of India were nationalized via the State Bank of India
(Subsidiary Banks) Act, 1959.
In 1969, fourteen major private commercial banks were nationalized. These 14 banks
Nationalized in 1969 are as follows:
1. Central Bank of India
2. Bank of Maharashtra

Presented by Juthika Dey # 15

 3. Dena Bank
4. Punjab National Bank
5. Syndicate Bank
6. Canara Bank
7. Indian Bank
8. Indian Overseas Bank
9. Bank of Baroda
10. Union Bank
11. Allahabad Bank
12. United Bank of India
13. UCO Bank
14. Bank of India
The second major phase of nationalization occurred in 1980, when Government of India
acquired the ownership of 6 more banks, thus bringing the total number of Nationalized
Banks to 20. These 6 banks were:
1. Punjab and Sind Bank
2. Vijaya Bank
3. Oriental Bank of India
4. Corporate Bank
5. Andhra Bank
6. New Bank of India
This entire process resulted in 20 initialized banks in India by 1980.
Out of the above six, New Bank of India was later merged into Punjab National Bank in
1993. This left 19 nationalized banks in India at that time.
MERGING OF BANKS
Government of India (GoI) has consolidated 10 Public Sector Banks into 4 banks. The
announcement of this mega-merger was made by Union Finance Minister Nirmala
Sitharaman in 2019. After this mergers, the country is having a total of 12 public sector
banks, including State Bank of India (SBI) and Bank of Baroda (BoB). This will result in
seven large public sector banks and five smaller ones.
For Banks:
1. Small banks can gear up to international standards with innovative products and
services with the accepted level of efficiency.
2. PSBs, which are geographically concentrated, can expand their coverage beyond their
outreach.
3. A better and optimum size of the organization would help PSBs offer more and more
products and services and help in integrated growth of the sector.
4. Consolidation also helps in improving the professional standards.

Presented by Juthika Dey # 16

 5. This will also end the unhealthy and intense competition going on even among public
sector banks as of now.
6. In the global market, the Indian banks will gain greater recognition and higher rating.
7. The volume of inter-bank transactions will come down, resulting in saving of
considerable time in clearing and reconciliation of accounts.
For economy:
1. Reduction in the cost of doing business.
2. Technical inefficiency reduces.
3. The size of each business entity after merger is expected to add strength to the Indian
Banking System in general and Public Sector Banks in particular.
4. After merger, Indian Banks can manage their liquidity – short term as well as long
term – position comfortably.
For government:
1. The burden on the central government to recapitalize the public sector banks again
and again will come down substantially.
2. This will also help in meeting more stringent norms under BASEL III, especially
capital adequacy ratio.
3. From regulatory perspective, monitoring and control of less number of banks will be
easier after mergers.

Presented by Juthika Dey # 17

Presented by Juthika Dey # 18
Post the mega-merger, the six PSBs that will remain independent are as follows:
1. Indian Overseas Bank,
2. UCO Bank,
3. Bank of Maharashtra
4. Punjab and Sind Bank
5. Bank of India, and
6. Central Bank of India.
Merits of Merger
• A large capital base would help the acquirer banks to offer a large loan amount
• Service delivery can get improved
Recapitalization need from the government to reduce.
• Customers will have a wide array of products like mutual funds and insurance to
choose from, in addition to the traditional loans and deposits
• Technological up-gradation on the cards and various other products .
• With fewer banks, it is possible for the ministry to better focus on the banks on its
watch.
Demerits of Merger
• It would be tough to manage issues pertaining to human resource
• Few large inter-linked banks can expose the broader economy to enhanced financial
risks.

Presented by Juthika Dey # 19