Indian Banking Industry
The banking sector reforms undertaken in India from 1992 onwards were basically aimed at ensuring the safety and soundness of financial institutions and at the same time at making the banking system strong, efficient, functionally diverse and competitive. The reforms included measures for arresting the decline in productivity, efficiency and profitability of the banking sector. Furthermore, it was recognized that the Indian banking system should be in tune with international standards of capital adequacy, prudential regulations, and accounting and disclosure standards. Financial soundness and consistent supervisory practices, as evident in our level of compliance with the Basel Committee's Core Principles for Effective Banking Supervision, have made our banking system resilient to global shocks.India has not faced any major economic/financial crises, though in 1990-91, there was some pressure on the external sector with the current account deficit and external debt servicing reaching large proportions. However, due to prudent macroeconomic policies, it was possible to return the country to a sustainable growth path. As well as the long history of regulation and supe
The period 1969-90 witnessed rapid branch expansion and an adequate flow of credit to all sectors, including the neglected sectors of the country. Mergers of certain foreign banks at the global level have also not affected the Indian market, as their market share is currently very low. Generally, however, due to their limited knowledge of the local industry and branch network, foreign banks are very conscious about their asset quality and a major shift in the share of foreign banks may result in neglect of the credit requirements of small and medium-sized businesses, whose development is crucial for emerging markets, but which are perceived as carrying relatively higher risks. There have been no major difficulties experienced in coordination with the home country supervisors of foreign banks. However, the deregulation process has brought in more competition in the banking sector, resulting in delivery of innovative financial products at competitive rates. Entry of foreign banksDomestic banks account for 92% of total banking assets in India. While there is no regulatory deterrence to bank mergers, their incidence has not been significant and hence no problems have occurred in India. Rather, there is a possibility of consolidation for synergizing business/regional strengths, and efforts in this area may be board-driven with the functional autonomy that will emerge as a result of such disinvestment. 1 Issues in bank's mergers with non-banksIt has been our endeavor to preserve the integrity and identity of banks. However, with the structural reforms initiated in the real economy from the early 1990s, it was imperative that a vibrant and competitive financial system should be put in place to sustain the ongoing process of reforms in the real sector. Ideally, mergers ought to be aimed at exploiting synergies, reducing overlap in operations, right-sizing and redeploying surplus staff either by retraining, alternate employment or voluntary retirement, etc.
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