CHAPTER 1
INTRODUCTION
1.1 INDUSTRY PROFILE
BANKING INDUSTRY
The Webster’s dictionary defines Bank as “an establishment for the custody, loan, exchange, or issue of money, for the extension of credit, and for facilitating the transmission of funds
: the table, counters, or place of business of a money changer.” A Bank can also be defined as a financial institution that accepts deposits and channels the money into lending activities.
History of Banking
The first
banks were probably the religious
temples of the ancient world, and were probably established sometime during the 3rd millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as
gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves. There are extant records of
loans from the 18th century BC in
Babylon that were made by temple priests to merchants.
Modern western economic and financial history is usually traced back to the coffee houses of London. The London
Royal Exchange was established in 1565. At that time moneychangers were already called bankers, though the term "
bank" usually referred to their offices, and did not carry the meaning it does today. There was also a hierarchical order among professionals; at the top were the bankers who did business with heads of state, next were the city exchanges, and at the bottom were the
pawn shops or "
Lombard"'s.
Global banking and capital market services proliferated during the 1980s and 1990s as a result of a great increase in demand from companies, governments, and financial institutions, but also because financial market conditions were buoyant and, on the whole, bullish.
Growing internationalization and opportunity in financial services entirely changed the competitive landscape, and now many banks prefer the “universal banking” model. Today universal banks are free to engage in all forms of financial services, make investments in client companies, and function as much as possible as a “one-stop” supplier of both retail and wholesale financial services.
The Indian Story
Banking in India originated in the first decade of
18th century with The General Bank of India coming into existence in
1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the
State Bank of India being established as "The Bank of Bengal" in
Calcutta in June
1806. A couple of decades later, foreign banks like
Credit Lyonnais started their
Calcutta operations in the
1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the
British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the
Allahabad Bank, which was established in
1865.
By the
1900s, the market expanded with the establishment of banks such as
Punjab National Bank in 1895 in Lahore and
Bank of India in
1906 in
Mumbai - both of which were founded under private ownership. The
Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from
1935. After India's independence in
1947, the Reserve Bank was nationalized and given broader powers.
Indian Banking- Present and Future
Currently, banking in India is considered to be fairly mature in terms of supply and product range. Indian economy is one of the fastest growing economies in the world. The country’s GDP has been growing at an average rate of almost 7 percent during the last decade with the GDP growth rate touching 9.4 percent in the last year. The Indian banking industry also has obtained its share in the growth of the Indian economy. In the post nationalization period, the country witnessed unprecedented expansion in the branch network of commercial banks with these banks reaching the people in far-flung unbanked areas. There was a gradual shift in the approach of nationalized banks from ‘class banking’ to ‘mass banking’. The present focus on retail credit such as housing loans and vehicle loans, regulatory norms for flow of credit to agricultural sector and changes in the attitude of the people now opting for availing loans to build their assets, have created a vast market potential for banks in India. On the other hand, the Indian household sector, which is one of the largest savers in the world, still continues to lock up a major portion of its savings in the form of investments in gold and real estate. The need for huge investment in various infrastructure projects being undertaken for providing support to the economic development of the country opens up a hitherto untapped market in the financial sector in India. The overall banking scenario is proving to be a fast growing profitable avenue for commercial banks, which is now attracting the foreign banks for reaping benefits of the developing economy.
Further, the Indian banking industry has realized the critical importance of IT based operational solutions for surviving the fierce competition to enhance the customer base. Many banks have implemented IT based ‘Core Banking Solutions’ in the recent time. A considerable amount has been spent in the form of IT investments by major banks in the country. Wherever required, the banks have undertaken business process re-engineering to suit the technology.
Indian Banks also seek to expand overseas considering both developing and developed nations. Expanding into developed economies will provide Indian Banks an expertise, much needed to face competition from global players in local market i.e., Indian market. High margins and opportunity to reap profits lure the Indian players to developing economies.
The Reserve Bank of India in its ‘road map’ for the banking industry has indicated that the Indian market will be opened for international banks by 2009. It is expected that apart from the existing foreign players, many such other banks would gain entry in the Indian markets to tap the vast potential. These banks with the help of advanced technology, adequate capital for investment, and their customer centric approach attract the profitable customers from the existing banks. A fierce competition between the existing banks and the new entrants provides impetus for business growth.
The new foreign banks entering the Indian market strive for creating a strong customer base. These banks, with their large resource availability in the form of capital, infuse the latest IT based technological solutions for quality financial services. The Indian commercial banks have experienced the shift of preferences of the new generation customers from ‘personalized banking’ to ‘technological banking’. This techno-savvy customer group prefers to complete banking transactions from their home or offices rather than visiting the bank branch. They have very little loyalty to their bankers and given a slightest improved technology based service, they are ready to shift their banking needs from the existing to another bank. In the face of the threat of losing profitable customers to the new entrants in the banking sector, the existing commercial banks evolve suitable market strategies aimed at attracting new customers and retaining the existing ones.
To effectively meet the competitive challenge from such banks, the Indian banking industry will have to gear up and adopt the global best practices, which would make them stronger and comparable with the international banks. In the changed circumstances, the need for ‘need for customer delight’ overrides the need for ‘customer service’.
If you are not able to download projects read this
Linear Mode
