At a time when global banks were filling bankruptcy and their inefficiency to handle credit led to 2008 global recession, Indian banks emerged as the rising stars, as it was able to overcome a period of instability in the global market with ease. Indian banking system has come under heavy criticism over the last two years for its degenerative functioning and system, especially the public sector banks and private Indian banks. The Indian banks have been plagued with bad corporate governance, nepotism, and the recent scams. The faith of the people has been jolted, as they entrusted the Indian banks, specifically the public sector banks, that have disappointed the common man. But, when the global banks brought in reforms that ushered in stability to the world banking system, Indian banks were left behind. As a result, the country’s banking system has failed to keep itself abreast with the technological and systematic reform in the functioning and structures of Indian banks.
The significance of banks and changing nature of them in India
A bank is able to overcome both its internal and external challenges and keep itself upbeat with the latest technological advancements in the world. A sound and updated banking system is vital for the country’s economy to function efficiently and smoothly. The Indian banking system’s genesis can be traced back to 1780s when the first of many banks opened up on the Indian shore under the colonial administration. In the nineteenth century, several new banks came into existence slowly and steadily bringing the economy under a proper banking system. Till the time the Reserve Bank of India was formed in 1935, the presidency banks functioned as quasi-central banks. After India’s Independence, several new banks opened up and the period between 1960s to 1980s witnessed the nationalisation of the private banks. These nationalised banks run the major portion of the Indian banking system with people entrusting them with their hard-earned money. The economic liberalisation in 1991, ushered in the first first wave of much-need banking reforms following the reports of Narasimham Committee. The liberalisation of economy led to the private banks and foreign banks to venture in the Indian banking system that not only proved to be a boon for the customers but enriched competency and increased the efficiency of the nationalised banks.
The differentiation between Foreign banks and Indian banks
In the initial years foreign banks’ ventured into the Indian economy, these banks were catering to Indian elites through high-end services. But, with the passage of time the foreign banks have transformed themselves to adapt to the local landscape, while experimenting with measures to suit the Indian living standards and demands. Foreign banks provide cross-border financial support, access to the international market, provides capital assistance in the global market and several other premium services. But, the problem for the foreign banks lies with the customer base that can avail their services due to lack of access in the small towns and cities and the affordability of services for the poor and lower middle class. This makes it difficult for the foreign banks to make substantial ground in the Indian banking system. However, the Indian banks still cater to large section of the population than the foreign banks. The far and wide reach of Indian domestic banks has helped them to provide banking services in the remotest villages, small towns and cities.