The Banking & Financial Industry in India

The Financial & Banking Industry in India is more than 150 years old. It dates back to 1850s when four Gujaratis and a Parsi stockbroker would gather under the banyan trees which were in front of Mumbai’s town hall.  The meetings continued regularly though at different venues. During this period, the number of brokers increased as well.

Gradually, with the numbers of members increasing, the group moved to Dalal Street in 1874 and in 1875, they became an official organization which came to be known as, ‘The Native Share & Stock Brokers Association.’

In 1956, under the Securities Contracts Regulation Act, the BSE became the first stock exchange which was recognized by the Indian Government.

On the recommendation of the Pherwani Committee in 1991, the National Stock Exchange of India was set up by the then Government of India. It was promoted by leading Financial Institutions essentially led by IDBI on the behest of the Government of India. Incorporated in November 1992, as a tax paying organization, it was recognized as a stock exchange in April 1993 under the securities contracts (Regulation) Act, 1956.

The Banking industry in India is adequately capitalized and regulated. The economic and financial conditions are much better here. Liquidity, credit and market studies have proven Indian banks to be flexible. They have negotiated the ups and downs in the global economy reasonably well.

The RBI or Reserve Bank of India is the topmost body that monitors and governs the banking industry in India.  Any shortcoming or discrepancies in the banking industry are dealt with by the RBI.

Schedule and Non-scheduled banks are a key division of the banking industry in India. There are an approximate 67,000 scheduled bank branches located in India. They consist of co-operative and commercial banks. The Public Sector Banks form the base of the banking sector in India.

The total assets of these public sector banks account for 78% out of the total assets in the banking sector in India. The private sector in banking is slowly making its way up. They are the leaders so far in mobile banking, phone banking, ATM’s and Internet Banking sectors.

With global recession looming large, the investment in the banking industry in India still prevails though the volumes may have gone down considerably. FDI in India grew by a whopping 145% in between 2006 and 2007 and by a decent 46.6% during 2007-2008. The FDI in 2009 was down to 18.6%. However, with the recession extending its session, the investments are liable to rise during this period.

The government of India has started encouraging foreign investment in the banking sector, as a result of which the foreign players will help in the growth of this sector. FDI in Indian Banking may lead to improved efficiency, better capitalization and an improved adaptability.  While the government of India is attracting FDI, FII and NRI investment in this field, the Indian banking and financial industry has immense potential to grow even further and expand.

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