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Deregulation and Efficiency of Indian Banks pp 1–10Cite as

Introduction

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Part of the book series: India Studies in Business and Economics ((ISBE))

Abstract

Chapter 1 illuminates the background of the study, and highlights the precise objectives and contributions of the book.

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Notes

  1. 1.

    In India, the policy makers that have been entrusted with the task of formulating the policies for banking sector comprise the Reserve Bank of India (Central Bank), Ministry of Finance and related government and financial sector regulatory entities.

  2. 2.

    This committee is popularly known as Narasimham Committee I, named after its chairman M. Narasimham.

  3. 3.

    This committee is popularly known as Narasimham Committee II, named after its chairman M. Narasimham.

  4. 4.

    Except non-resident Indian (NRI) deposits, small loans up to INR 0.2 million and export credit, the interest rates are fully deregulated.

  5. 5.

    The combined pre-emptions under CRR and SLR, amounting to 63.5 % of net demand and time liabilities in 1991 (of which CRR was 25 %), have since been reduced, and presently, the combined ratio stands below 35 % (of which, the SLR is at its statutory minimum at 24 %).

  6. 6.

    The GOI has injected about 0.1 % of GDP annually into weak public sector banks (Hanson 2005; Rangarajan 2007). During the period 1992–1993 to 2001–2002, GOI contributed some INR 177 billion, about 1.9 % of the 1995–1996 GDP, to nationalised banks (Mohan and Prasad 2005).

  7. 7.

    In 1993, the State Bank of India (SBI) Act, 1955 was amended to promote partial private shareholding. The SBI became the first PSB to raise equity in the capital markets. The amendment of the Banking Regulation Act in 1994 allowed the PSBs to raise private equity up to 49 % of paid-up capital. Since then 20 PSBs have diversified their ownership, although the government has remained as the largest shareholder.

  8. 8.

    India adopted the Basel Accord Capital Standards in April 1992. An 8 % capital adequacy ratio was introduced in phases between 1993 and 1996, according to bank ownership and scope of their operations. Following the recommendations of Narasimham Committee II, the regulatory minimum capital adequacy ratio was later raised to 10 % in the phased manner.

  9. 9.

    The time for classification of assets as nonperforming has been tightened over the years with a view to move towards the international best practice norm of 90 days by end 2004.

  10. 10.

    From 2000 to 2001, the PSBs are required to attach the balance sheet of their subsidiaries to their balance sheets.

  11. 11.

    Priority sector has been redefined to comprise small and marginal farmers, tiny sector of industry, small business and transport operators, village and cottage industries, rural artisans and other weaker sections.

  12. 12.

    In 1993, the RBI issued guidelines concerning the establishment of new private sector banks. Nine new private banks have entered the market since then. In addition, over twenty foreign banks have started their operations since 1994.

  13. 13.

    A high-powered Board of Financial Supervision (BFS) has been constituted in 1994. BFS exercised the power of supervision in relation to the banking companies, financial institutions and non-banking companies, creating an arm’s-length relationship between regulation and supervision. On-site supervision was introduced in 1995, and annual supervision of CAMELS was introduced in 1997.

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Authors and Affiliations

  1. Faculty of Economics, South Asian University, New Delhi, India

    Sunil Kumar

  2. Department of Humanities and Social Sciences, Indian Institute of Technology Roorkee, Roorkee, Uttaranchal, India

    Rachita Gulati

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  1. Sunil Kumar
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  2. Rachita Gulati
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Kumar, S., Gulati, R. (2014). Introduction. In: Deregulation and Efficiency of Indian Banks. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-1545-5_1

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