Indian banking is constantly evolving. It is adopting international benchmarks and best practices. With banks improving their efficiency and adapting technology, the thin line between the private and public sector is fast blurring. Also, with Indian banks betting on global expansion and many foreign banks increasingly looking at India, the banking system is all set to further evolve to a higher level.

Economically strong nations are backed by sound banking systems. The banking system in India has played a crucial role in the growth and development of the economy. India, today, is one of the fastest growing economies in the world. It is now Asia’s third largest economy and has made inroads into the global top 10 in terms of GDP. The Indian banking system has been stable without any major crises. It is relatively transparent in its operations and follows the international best practices of disclosure.

The Indian banking system has come a full circle since independence. From nationalization to liberalization and to the steps taken by the government in the last couple of years to reduce its stake to the strategically important 51% in Public Sector Banks (PSBs)— truly the Indian banking system has seen it all. The coming of the new generation private banks, in post 1991, has heralded an era of competitive spirit in the banking system. From branch banking to joint ventures to 100% subsidiaries, the scope of the foreign banks has also come of age.

But speaking about banks’ performances would be out of context if one does not speak about the underlying economic conditions. The Indian economy grew impressively in the financial year 2004-05. Real GDP grew at a rate of 6.9% in this period with an all-round Performance and Developments 2004-05 Indian Banking Chartered Financial Analyst
October 2005
7 contribution from agriculture, industry and the services sector. Despite unfavorable monsoons, real GDP, originating from agriculture and allied activities, rose by 1.1%. Industrial recovery was broad-based but was driven mainly by the manufacturing sector. The Indian export growth was also buoyant. The growth in the industrial sector of 8.4% in the first three quarters of the financial year was the highest recorded since 1995-96. The service sector remained the main engine of growth contributing more than 55% to the GDP.

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