2.  The Banking has come a long way from the days of presidency banks.  In pre-independence and post –independence period and even after independence, banking was handicapped by the poor saving habits of people.  During the Second World War, there was a mushroom growth of bank offices.  During 1939-45,on an average a bank failed every sixth day which endangered the banking industry.  The position was controlled with enactment of the Banking Companies (Regulation)Act,1949.

3. 1. Foundation Phase 2. Expansion Phase 3. Consolidation Phase 4. Reform Phase

4.  The period upto first ‘nationalization of banks’ i.e. 1969.  Focus – laying of a foundation for sound banking system.  Setting up of required legal framework for consolidating the banking system.  Imperial Bank of India converted into the State bank of India.  Princely state banks converted into associate banks of the State Bank of India.

5. This phase started in mid 1960s but gained momentum in July 1969. A phase of ‘mass banking’. The network of branches expanded at a rapid speed. Credit was directed into priority sector. Banks emerged as important instrument of socio- economic change but fast expansion created certain problems.

6.  This phase started in 1985.  The weakness of expansion phase pushed banking into consolidation phase.  The RBI started some initiatives like relaxation in control.  AIM- was to overcome the weaknesses which emerged from fast expansion and too much of control of RBI.

7.  From 1947-1990, there was impressive widening of the banking system but at the end of 1990 there was a general consensus that banking system has not become sound enough.  In 1991, India faced a macro- economic crisis.  Concerned Govt. of India appointed a high level committee headed by Shri M.Narasimham.  Another committee headed by Mr. Khan.  Banking sector is centred around recommendations from these experts.

8.  The committee can be described as committee on financial sector reforms.  The committee was appointed to examine structure,organisation and function of financial system.  The second committee also headed by M. Narasimham was for reviewing financial sector reforms.

9. 1. SLR and CRR 2. Higher interest rates on SLR and CRR 3. Phasing out of Directed Credit 4. Deregulate interest rates 5. Capital Adequacy Norms 6. Adoption of Uniform Accounting Practices 7. Income Recognition 8. Provisions 9. Transparency

10. 10.Asset Re - construction Fund 11.Structure of Banking System 12.Branch Licensing 13.Computerisation 14.Control 15.Development Financial Institutions

11. M. Narasimham headed the committee on review of financial sector reforms. It submitted its report in April, 1998. 1. Need for a strong banking system 2. Merger of strong banks 3. Narrow banking for weak banks 4. Confine area of local banks 5. Review govt.’s role in public sector banks 6. Review capital adequacy norms

12. 7.Review legislations 8.Lesser regulation and supervision 9.Integrate lending activities 10.Speed up computerisation 11.Review personnel policies 12.Safeguard against vigilance enquiries 13.Depoliticise bank boards 14.System for asset liability and risk management 15.Assets reconstruction company (ACR) 16.New watch dog for banks 17.Money market rate

13. (Working Group for Harmonisation of the Operations of Development Financial Institutions (DFI’s) and Banks) The Khan Committee reviewed the role,structure and operations of DFI’s and banks in the emerging operating environment and submitted its report in may 1998. It’s important recommendations are : 1. Need for a super regulator 2. Redefine priority sector 3. Mergers between FI’s and banks 4. Co-ordination Committee 5. Removal of certain restrictions 6. Move towards universal banking 7. Recommendations regarding state – level financial institutions (SLI) 8. Other recommendations

14. The RBI set up the group to suggest measures for revival of weak public sector banks. In summarised form the recommendations of the panel in each of the area can be summed up as follows: 1.OPERATIONAL RESTRUCTURING: a) Change in mode of operations b) NPA management c) Cost reduction 2.ORGANISATIONAL RESTRUCTURING 3.FINANCIAL RESTRUCTURING

15.  According to RBI’s declaration, Indian banks having foreign branches and foreign banks operating in India have to migrate to BASEL 2 norms from March 31,2008 while all other commercial banks excluding local area banks and Regional Rural Banks have been permitted to adopt BASEL 2 norms latest by March31, 2009. To prepare banks for implementation of BASEL 2 norms, a three -track approach has been adopted by the RBI with regard to capital adequacy rules

16. The Govt. of India primarily relied on recommendations of various committee’s and working groups to start the process of reforms. The changes brought down by the process of reforms are discussed below: 1. Reduction in SLR AND CRR 2.Higher Interest Rates on SLR and CRR 3.Deregulation of interest rates 4.Change in the approach of banks 5.Setting up of new banks

17. 6.Turning into buyer’s market 7.Capital adequacy norms 8.Directed credit 9.Prudential accounting standards 10.Valuation of bank’s investment in govt. securities 11.Branch licensing 12.Bank’s access to capital market 13.Bank’s supervision 14.Customer services 15.Merger of banks 16.Recovery tribunals 17.Computerisation 18.Narrowing down of distinction between banks and financial institutions 19.Reduction of non- performing assets

18. The process of globalisation and liberalisation has presented certain challenges to the Indian banking. They are briefly discussed below: 1. Competition from global majors 2. Competition from new banks 3. Pressure on spread 4. Changes in product pricing 5. Relationship banking 6. Self –regulation by banks 7. Challenges from the structure of Indian economy 8. Management of non- performing assets 9. Managing technology