A bank is a financial institution that acts as a payment agent for customers and borrows and lends money.
The history of modern banking began with `Banco di San Giorgio'
(St. George Bank) in Italy at Genova in 1406. On the eve of
independence, the Indian banking system had inherited 2,876 branches
serving an average population of 82,000 with Rs. 860 cr of
deposits and Rs. 470 cr of advances along with the responsibility of
recuperating the war-torn economy saddled with poverty and
unemployment. Indian banking has made tremendous progress
since then. The Indian banking system was highly regulated for
many years after the independence. The state-owned banks dominated
the scene with foreign banks and a few small-sized private sector
banks remaining as the marginal players. Nationalization of the
commercial banks in two phases, i.e., in 1969 and 1980, saw
banking services spreading to the remote areas of the country. The
banks were used as an instrument for rapid socioeconomic
development. The profitability of Public Sector Banks (PSBs) received less
importance vis-a-vis the social obligation of the industry. Banks, in
India have undergone a sea change in the wake of new economic
reforms ushered in the year 1991. These reforms
qualitatively revolutionalized Indian banking.
The new millennium has
brought with it challenges and opportunities in various fields of
banking. Indian banking, which was operating in a highly comfortable
environment till the beginning of the 1990s, has been pushed into
the tides of intense competition. The modern banking activity
is marked by itineraries into unchartered horizons mingled
with risks and stiff competition. The Government of
India initiated the process of economic reforms in 1991. A committee,
headed by Shri Narasimham, former RBI Governor, was set up to make
recommendations on the financial sector reforms. As the banking
system formed the most dominant segment, major reforms
were brought about in the banking sector, such as introduction of
Prudential Norms for Income Recognition, Asset Classification
and Provisioning with International standards, Capital
Adequacy norms in line International standards, Provisioning and
Classification of Non-Performing Assets (NPAs) as per the global
norms, etc. Other developments were risk-based supervision, a system
of prompt corrective action, more
effective risk management, initiatives and corporate
governance. The attention of the nation thus shifted to qualitative
aspects of banking.
With the initiation of financial sector reforms,
competition among the banks has increased. Barriers to entry have
been sharply reduced. Economies of scale and scope are being
exploited to face the competition. So, norms on the lines of international
best practices are being adopted to ensure stability of the
banks. |
