Banking in india: past performance and future prospects

Abstract

In the Indian landscape, public sector banks constitute more than 75% of the banking business. These banks are under a massive pile of NPAs. Many banking frauds are making their way to the news headlines, most of which are linked to the public sector banks. Foreign banks are also struggling in the country and are looking for exit opportunities. The RBI is also changing the banking industry by revamping various norms and building robust and resilient risk management systems. These all pose us to look deeper into the system and understand the inherent issues of the system. This paper examines the banking history, explains the rationale behind developing a banking law and understands the current banking system. It also tries to understand the role of the central bank as a watchdog, compares its performance with the developed nations and talks about the modern steps RBI took to curb the rising NPA issue. Later, it tries to compare the performance of the public sector and private sector banks based on various parameters and understand the reason behind the poor financial performance of the public sector banks. The financial ratios & board composition of six sample banks have been considered for the study. Finally, it talks about the issues faced by global banks in India and compares the scenario with other emerging countries. The paper unearths specific critical issues of the Indian banking system. Due to the low participation of private and global banks in social sector coverage, public sector banks' concentration is increasing, and they are hitting their margins. These banks' management style is not efficient, leading to lower profitability and creating room for banking fraud. Due to strict legal, regulatory and compliance issues in priority sector lending, foreign banks are finding India a less lucrative market than the other economies and looking for exit opportunities.