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Public and private sector banks India notes-CSEET

Public and private sector banks India notes-CSEET

Public and private sector banks India:

ICSI CSEET: The Council of the ICSI has released a notice regarding CSEET on the day of the inauguration of ICSI Golden Jubilee Celebrations on 4th Oct 2017.

The Gazette Notification on the Company Secretaries (Amendment) Regulations, 2020 has been published on 3rd February 2020 in the Official Gazette of India and the same shall be applicable from the said date of publication.

Now ICSI Published a notice regarding CSEET Test which going to start from 2020 May.

We are now going to discuss the details of CSEET Paper-3 Economics and Business Environment notes – Public and private sector banks India

Public and private sector banks India

Public and private sector banks India

Public and private sector banks India notes:

Public Sector Banks

The banking sector was developed during the British era. British East India Company set up three banks: Bank of Bengal (1809); Bank of Bombay (1840) and Bank of Madras (1843). These three banks were later merged and called Imperial Bank, which was taken over by State Bank of India (SBI) in 1955. The Reserve Bank of India was established in 1935, followed by the Punjab National Bank, Bank of India, Canara Bank and Indian Bank.

July 19, 1969 was an important date in the history of Indian banking. As it is on this date that 14 major scheduled commercial banks having a deposit of more than INR 50 crore were nationalized. The 14 banks were- Central Bank of India, Bank of Maharashtra, Dena Bank, Punjab National Bank, Syndicate Bank, Canara Bank, Indian Overseas Bank, Indian Bank, Bank of Baroda, Union Bank, Allahabad Bank, United Bank of India, UCO Bank and Bank of India.

Subsequently, some private banks were observed to suffer from governance problems. Further, there was a need to address the need of credit delivery in greater measure. In the second wave of nationalization six banks, i.e. Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab and Sind Bank and Vijaya Bank—with deposit liabilities of ?200 crore and above were nationalised in April 1980. With the nationalisation of these six banks, the number of public sector banks (PSBs), including State Bank of India and its associate banks, rose to 28 in April 1980.

PSBs have played a significant role in the development of the country over the last five decades. They have rapidly expanded their branch network, extended credit to crucial segments such as large industry, MSMEs, agriculture, trade and retail, and participated wholeheartedly in the government’s financial inclusion efforts.

Despite the opening up of the sector to private entities in the early 1990s, PSBs remain formidable players. This is underscored by the fact that their market share in overall bank credit and overall bank deposits was at 63.2 per cent and 66.9 per cent respectively at the end of FY18.

Though their market share has come down over the years, PSBs may regain some or most of it. They are now through with the recognition of bad loans, and are taking efforts to recover them. Further, they have tightened the loan origination process and put in place a monitoring mechanism to ensure that new loans don’t go off-kilter. Moreover, the government is continuously pumping in capital to nurse them back to health and pushing for consolidation.

While some PSBs (such as SBI, PNB and Canara Bank) are lumbering giants, they did not balk when it was time to adapt to changes in the financial system and customer requirements, embracing retail banking and technology with gusto.

A recent drastic initiative of Government of India is going to change the scenario of public sector banks. As a banking reform measure, 10 public sector banks will be merged into four entities. This would take the number of banks in the country from 27 in 2017 to 12.

These bank mergers, and the ones already carried out, will lead to the creation of big banks with an enhanced capacity to give credit. These big banks, would also be able to compete globally and increase their operational efficiency by reducing their cost of lending.

The banks have been chosen for mergers on the basis of ensuring that there is no disruption in the banking services, and that the banks should benefit from increased CASA [current account savings account] and greater reach.

The largest of the mergers announced is that of Punjab National Bank with Oriental Bank of Commerce and United Bank. The amalgamated entity — to be called Punjab National Bank — will become the second-largest public sector bank in India, after the State Bank of India. It will also become the second-largest bank in India in terms of its branch network, with a combined total of 11,437 branches.

The second merger announced was that of Canara Bank and Syndicate Bank, which would render the merged entity the fourth-largest public sector bank. The merger also has the potential to lead to large cost reductions due to network overlaps. Further, the similar business cultures of the two banks would also facilitate a smooth transition.

The fourth merger announced is of Indian Bank and Allahabad Bank. This, too, would lead to a doubling of the size of the business and would also lead to a huge potential for scaling up due to the complementary networks of the two banks.

Private Sector Banks

Private Sector Banks refer to those banks where most of the capital is in private hands. In India, there are two types of private sector banks viz. Old Private Sector Banks and New Private Sector Banks. Old private sector banks are those which existed in India at the time of nationalization of major banks but were not nationalized due to their small size or some other reason. After the banking reforms, these banks got license to continue and have existed in India along with new private banks and government banks.

Old Private Banks

At present, there are 12 old private sector banks in India as follows:

  1. Catholic Syrian Bank
  2. City Union Bank
  3. Dhanlaxmi Bank
  4. Federal Bank
  5. Jammu and Kashmir Bank
  6. Karnataka Bank
  7. Karur Vysya Bank
  8. Lakshmi Vilas Bank
  9. Nainital Bank
  10. Ratnakar Bank
  11. South Indian Bank
  12. Tamilnad Mercantile Bank

Among the above, Nainital Bank is a subsidiary of the Bank of Baroda, which has 98.57% stake in it.

New Private Sector Banks

The new private sector banks were incorporated as per the revised guidelines issued by the RBI regarding the entry of private sector banks in 1993. At present, there are nine new private sector banks as follows:

  1. Axis Bank
  2. Development Credit Bank (DCB Bank Ltd)
  3. HDFC Bank
  4. ICICI Bank
  5. IndusInd Bank
  6. Kotak Mahindra Bank
  7. Yes Bank
  8. IDFC
  9. Bandhan Bank of Bandhan Financial Services.

Note: All the old and new banks listed above are scheduled commercial banks.

Small Private Banks in India

Small private banks are financial institutions that have the license to offer fundamental banking services by accepting deposits and lending. The aim of these banks is to provide financial inclusion to those sections of the economy which is not served by other banks like small business units, small and marginal farmers, micro and small industries and the unorganized sector. The list of small private banks in India are as under:

  1. Ujjivan small finance bank.
  2. Jana small finance bank.
  3. Equitas small finance bank.
  4. AU small finance bank.
  5. Capital small finance bank.
  6. Fincare small finance bank.
  7. ESAF small finance bank.
  8. North East small finance bank.
  9. Suryoday small finance bank.
  10. Utkarsh small finance bank.

Almost every reform is born out of a crisis. So is the case with Indian economic reforms. The Balance of Payments crisis in 1991 forced the government to begin dismantling the licence permit raj. As Manmohan Singh began setting up framework for fiscal reforms under Prime Minister Narasimha Rao’s direction, Rangarajan as Governor began erecting a new monetary structure.

Although RBI had the mandate to issue new banking licences, it did not until 1994 when the dust over the financial crisis settled. It was also the time when the markets were rocked by frauds in the nonbanking finance companies segment with CRB Financial being the prime example. It was a providential escape for the RBI which was about to give a banking licence to CRB as well.

Institutions such as IDBI, ICICI, HDFC and UTI were given licences. Others who managed were Centurion Bank, Bank of Punjab, Times Bank, Global Trust Bank and IndusInd Bank of the Hindujas. Barring IndusInd, all the others are merged into another bank.

Global Trust Bank, was the first one to blow up among the new-age banks in the midst of a scandal. It raised questions about RBI’s judgement. But the central bank was quick enough to identify problems and merge it with Oriental Bank of Commerce in 2004.

Centurion Bank of Punjab and Times Bank merged with HDFC Bank. IDBI Bank NSE 5.70 %, which merged with parent Industrial Development Bank of India, is a standing example of how not to run an institution.

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