Banking on India
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The banking industry in India is sufficiently capitalized and regulated. The economic and financial conditions here are better than in any other country. Liquidity, credit, and market studies have proven Indian banks to be resilient. They have negotiated the downturn in the global economy well.
The Reserve Bank of India (RBI) is the topmost body monitoring the Banking Industry. Any shortcomings or discrepancies are dealt with by the RBI.
The banking industry in India is divided into scheduled and non-scheduled banks. 67,000 scheduled bank branches are located in India. They consist of cooperative banks and commercial banks. The PSBs (Public Sector Banks) form the base of this sector in India. They account for 78% of the assets in the banking sector. The Private Sector banking is making headway. They are leading in mobile banking, phone banking, ATMs, and Internet Banking sectors.
Sectors of the banking industry include investment banking, retail, and private banking. Investment banking is a growing sector with more Indians looking to invest funds in mutual funds and stocks rather than the traditional fixed deposits and schemes.
Retail banking is when the bank deals with individual customers rather than corporations. Services offered by these banks are normal savings, personal loans, checking accounts, and debit/credit cards amongst others. This is also a growing sector as the drive for cashless transactions is growing. More people are opting for debit and credit cards. Private banking is where the personalized financial services are provided to individuals or corporations of high worth.
All these sectors are showing immense growth prospects. Internet banking is also gaining prominence. The phone banking sector is also gaining in popularity. Thus, the entire banking sector is growing and offers immense potential.
This is why foreign banks are increasingly establishing their base in India. JP Morgan, Standard Chartered, Bank of America, and many other international banks have established centers in India to tap its potential.
FDI in this sector has been raised. 74% FDI via the automatic route is allowed in the private sector banks. This means that the aggregate foreign investment in any private bank considering all sources should be up to 74% of the paid-up capital. In the case of nationalized banks, the Portfolio and FDI investment’s maximum limit is 20%. This cap also applies to the investment in state banks and other associated ones.
Even with the global recession, the investment in the banking industry is still prevalent though the volume may have been reduced. The FDI entries in the country grew by 145% between 2006 and 2007 and by 46.6% during 2007–2008. The FDI in 2009 was down to 18.6%. However, with the recession abating the investments are sure to rise.
The government is also encouraging foreign investment in this sector, as the entry of foreign players will help the sector. FDI in Indian banking can lead to improved efficiency, better capitalization, and improved adaptability. So the government is attracting FDI, FII, and NRIs in this field.
Overall, the Indian banking industry has immense potential for further growth and expansion.
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March 2011
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