With improved risk management practices and altered approach to overall management and governance repositioned competitive strategies,improved IT infrastructureand sharper customer focus and enhanced customer-orientation commercial banks in India have been able to operate profitably within a narrower spread and achieve excellent financial results.
There has been considerable improvement in asset qualitywith NPAs of SCBswhich stood at 15.7 percent of gross advances and 7percent of total assets in 1995-96 declining to 3.3 percent of gross advances and 1.9 percent of total assets in 2005-2006.
The improvement in terms of decline in net NPA rate has been much more impressive.This trend is expected to continue with gross NPAs and net NPAs further declining in the years to come.There has been distinctly discernible improvement in performance on almost on all fronts.Indian banks are at present relatively much stronger and sounder vis-a-vis their Asian counterparts in terms of resilience,range of products,and services,quality of assets and productivity and profitability and overall balance-sheet strength.
Indian banking has attained this position through a process of development in six stages and Sri D.T.Pai former chairman of Syndicate Bankhas brought the significant banking developments and changes in these six decades in his own inimitable style in the book titled''Overview of Banking Developmet-1947-2007''
The book is divided in to two parts.-Part I and Part-IIand both the parts consist of four chapters each.While the chapters in Part-I deal with banking developments in pre-reform stage the focus of Part-II is on post reform banking developments.Dwelling on banking history in pre-independence era in Chapter I the author has indicated how the period saw the birth s of series of banks and series of deaths of banks too.This period also saw the birth of RBI,the central banking authority .
The period from 1947 to 1968 forms the subject matter of Chapter II.the period saw the enactment of Banking Regulation Act 1949giving powers to RBI to regulate,supervise and develop banking system on sound lines.In fact the decades of 1950s and 1960s provided real fondation for Indian banking system.Mr.Pai has explained how this period saw the development of necessary legislative framework for facilitating reorganisation of the banking system .Transformation of Imperial Bank in to SBI and redefinition of its role in Indain economy took place in this stage.The measure of social control over banks initiated in December 1967 ,establishment of National Credit Council,in 1967 setting up of term lending institutions,such as IFC in 1948,ICICI in 1955,IDBI,National Industrial Development Corporation,National Small Scale Industries Development Corporation etc are dealt with in this Chapter.The third chapter is devoted to the banking developments in the period from 1969to 1979.This was the period of rapid expansion.Fourteen major banks were nationalised 0n 19th July 1969.Lead bank schemr was conceived formulated and adopted for implementation in this stage.This period also saw formulation of innovative schemes of deposits and and credit including credit schemes for rural development,launching of scheme of lending under differential interst scheme,composite loan scheme,launching of 20 point programme,establishment of RRBs,in terms of Regional Rural Banks Act 1976 etc.The author has also explained how massive branch expansion took place in the period from 1969 to 1979.
The following supportive data with the help of which readers can gain full insight in to the changesand developments .Number of bank branches were 8262 in 1969and number of branches incresed to 30202 by 1979.The percentage of rural branches incresed from 22.4 percent to 44.1 percent in this period.and this is a significant development.
Population per branch declined from 65000 to 20000 in this period.Sri pai has also indicated that there was steady increse in the flow of credit to priority sectors as their share incresed from 14.6 percent in June 1969 to 30.6 percent in 1979.
The fourth chapter dilates on banking developments in 1980s.Nationalisation of six more banks,on 15th April 1980,revision of priority sector lending targetupward from 33to 40 percent implementation of IRDP scheme,setting up of NABARD,in 1982,establishment of DICs,annoncement branch expansion policy,adoption of new parameters for evaluation of performance of banks,Steps taken for rehabilitation of sick units ,introduction of health code system,to evaluate the quality of credit portfolio,steps taken for improvement of profitabilty,efforts at consolidation and diversification etc form the subject matter of this chapter.Withdrawal of credit authorisation scheme and launching of Service Arae approach with effect from 1st April 1989,establishment of SIDBIin 1990,implementation of debt relief scheme in1989,introduction of computerisation as per the recommendationof Rangarajan Committee,establishment of Discount and Finance House of India,,stock holding corporation of India,and SEBIare also covered in this chapter.
Chapter V deals with first phase of banking reforms.In this chapter Sri Pai has beautifully brought out the rationale of reforms in financial sector and recommendations of Narasimham committee which formed the blue-print for reforms.This chapter dilates on reform measures implemented for easing of external constraintsand factors affecting profitability of banks,such as administered interest rates,high level of pre-emption in the form of CRR and SLR,introduction of prudentio-al norms,relating to capital adequacy,income recognition,asset classification and provisioning,creation of competitive environment,institutional strengthening,,revision of format of Balance Sheetto bring about transparency,setting up of debt recovery tribunals,and enactment of SARFAESI ACT,provision of access to captal market for banks,micro finance schemr 1992,introduction of PLR,measures for improving credit delvery system,freedom for banks to rationalise branch network,new bank licensing policy,establishment of board for financial supervision in RBI,integration of financial markets in India,establishment of national stock exchange,national securities clearing corporation,Nationnal Securities Depository ltd,Basel Core principlesrelating to banking supervision,etc.Sri Pai has very competently anlysed and evaluated the impact of banking banking reforms in this chapter.
Chapter VI deals with banking reforms -phase IIimplemented in INdia based on second report of Narasimham committee submitted in April 1998.This chapter covers recommendations implemented in phases such as enhancement of capital adequacy ratioto 9 percentfrom earlier8percent,general provision of 1percent in respect of standard assets,introduction of ALM system,introduction of loan review mechanism,establishment of asset reconstruction company,to address the problem of hard core NPAsclassified as doubtful or loss assets.adoption of risk management system,dismantling of BSRBsimplementation of VRS,upgradation of technology,consolidation and convegence of banks and financial institutionsetc.
The author has logically classified reforms as competition enhancing measures,market force roleenhancing measures,,prudential measures,supervisory measures,and technology related measures.He has highlighted banking developments in the second phase of reforms since 1998 andhas listed emegence of universal banking,revolution of information technology,more effective payment and esttlement system,introduction of risk based supervision.,new basel accord2001,megers and amalgamations,corporate governance ,financial inclusion,bank licensing policy,CBS,RTGS,new banks and LABs,offshore banking,units,fair practice code,anti-money laudering,and KYCsetting up of banking codes and standards,board of India,credit rating agencies etcas significant developments during this period.In this chapter the author has thrown adequate light on risk management new basel accord IIand its implications,bith of new generation banks,and merger of 18 banks and financial institutionsthat took place during the period from 1995-96 to 2006-07.He has also discussed amalgamation RRBs nad establishment of LABs in private sector in this chapter.
C HAPTER VII attempts an evaluation of Indian banking sector on the basis of global benchmarks under different parameters such as capital adequacy ratio,return on assets,NIM,cost-income ratio,NPA rate,capital asset ratio,fund volatility ratio, etc.The author has based on his analysis of supportive dataconcluded that Indian banking system has emerged stronger,sounder,and more resilient and compares well with global rangeunder all vital parameters.Pursuit of global benchmarks without being oblivious of local realities is very vital and crucial for Indian banking industry today and also in the days to come.
Chapter VIII has attempted a comparison between public sector banks and private sector banks in such areas as branch network,in rural and semi-urban areas,and also in metro cities,market share of business,in deposits,advances,investments,,advances to priority sectors,financial performance,capital and asset quality,ratio of operating profits and net profit to total assets,use of technology etc.
The vast banking exposure and experience that the author has must have stood him in good stead in analysing the changes,and developmentsin different stages and arriving at the conclusions.This publication is a welcome addition to existing stock of literature on banking history.The book which is extremely rich in statistics and historical data incisively explores and examines various facets of banking developmentin the period from 1947 to 2007and provides focussed view of significant changes alongside the analysis and evaluation of their implications.
The book penned by Sri D.T.Pai eminent banker in his own inimitable style and in a lucid language is exclusively devoted to the narration and discussion of banking development in India in post independence eraand hence the title could have been more specific to epitomise the contents with exactitude.
To put the whole thing in a nutshell Sr Pai has competently undertaken a comprehensive peep in to the past six decades of Indian banking and has logically analysed developments and ,changes,and policy shifts apart from evaluating the impact thereof with useful supportive data. The book will surely prove useful to banking students,teachers of banking,researchers,and banking professionals.
Sri K.K.Pai veteran banker of All India stature and presently Registrarof Academy of General Education,who has written foreword has commended the effort of D.T.Pai in writing this useful book.That sri Pai has dedicated the book to to his mother is but the reflection of hos love towards his mother.Insertion of one more chapter by way of attempting of a look into the future in order to identify the emerging issues,concernsand challenges and the manner in which they can be addressed would have further enhanced the utility of the book.
[This is a book review published in Southern Economist,fotnightly financial journalin the issue dated 1st December 2007.
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