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The Indian banking sector

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Banking Sector Liberalization in India

Part of the book series: Contributions to Economics ((CE))

Abstract

This chapter gives an in-depth overview of the Indian banking sector and its structural setting. The focus is on the development of the sector since 1947, with special emphasis on the reforms that have taken place since 1991. Furthermore, it examines the structural setting of the Indian banking sector and its political, economic and institutional environment.

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References

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  32. See Ganesan (2003), p. 14; Joshi and Little (1997), p. 130. Hanson (2001b) reports that in 1988 the overview of the various lending rates covered ten pages. See Hanson (2001b), p. 246.

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  34. See Hanson (2001a), p. 8; Reserve Bank of India (2004b), p. 16; Shirai (2002c), p. 18. Priority sector lending requirements for foreign banks stand at the current level of 32% since 1993. The sub-targets for foreign and domestic banks are different as well. Foreign banks for example have a 10% target for the export sector, which is not the case for domestic banks. See Shirai (2002c), p. 18.

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  36. See Arun and Turner (2002b), p. 437; Hanson (2001a), p. 8; Hanson (2001b), p. 250f.; Reserve Bank of India (2005c), p. 15; Shirai (2002c), p. 13. An early attempt to liberalize loan rates actually started in 1988 by turning the maximum rate on non-directed credit into a minimum rate. See Hanson (2001a), p. 8.

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  41. See Reserve Bank of India (2005b), p. 1; Shirai (2002c), p. 19f. The ceiling on individual shareholding was increased to 10% after the amendment of the Banking Regulation Act in 1994. See Shirai (2002c), p. 20.

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  53. See Reserve Bank of India (2000), p. 5. The Narasimham Committee had suggested to increase the minimum capital to risk assets ratio from 8% to 10% to account for the increased off-balance sheet exposure of banks. See Government of India (1998), p. 22.

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  55. See ICRA (2004), p. 22f.; Joshi and Little (1997), p. 117; Shirai (2002c), p. 22. Loans are classified as substandard if they have been non-performing for up to two years and require a 10% provision. If the loan has been non-performing for more than two years, it is classified as doubtful and a provision of between 20–50% is made. To be classified as a loss, a loan has to be certified as a loss by an external auditor. In this event a 100% provision for the loan is made. See ICRA (2004), p. 22f.

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  94. Author’s calculation based on International Monetary Fund (2006b).

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  105. Some observers even regard the budget deficits in India as the main source of danger for the reform process. Manor (2005) for example argues that “the main threat to liberalization is not a U-turn, but fiscal indiscipline — budget deficits that result from overspending by ministers.” Manor (2005), p. 102.

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(2008). The Indian banking sector. In: Banking Sector Liberalization in India. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-7908-1982-3_2

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