India is the world's most populous democratic country and a
rapidly expanding economy, although it also suffers from widespread
poverty and poor infrastructure. The population remains around 70% rural,
although urbanization is progressing rapidly.
Banks in India are classified by the Reserve Bank of India (RBI) as either
Commercial Banks or Co-operative Banks. Commercial Banks are further classified
into public sector banks, private banks, foreign banks and regional rural
banks. Among commercial banks, public sector banks account for around three-quarters
of all loans and deposits.
Bank of India is the largest of the
public-sector banks, and by far the largest and most important bank in the
country overall. Data from the RBI shows that the State Bank of India
controls around 22% of deposits, and the same proportion of lending, making it
around three times larger than its closest competitors. Foreign banks and
regional rural banks have a 4.5% and 2.9% share respectively.
The penetration of banking services is low, with 57% of the population
having access to a bank savings account, and only 13% having access to a current (checking) account, according to D&B.
However investment in mobile banking, SMS banking and online banking has been a
strong trend in recent years, and is helping to extend access to financial
services among the rural poor.
The RBI is India's central bank, and is responsible for bank regulation as well as control of monetary policy. Though it was
originally privately owned, the RBI was nationalised in 1949, two years after Inidan independence, and remains wholly-owned by the state.
From the 1960s onwards, the government directly owned and
controlled the vast majority of the banking sector. This remained the case
until the early 1990s, when the policy changed towards one of liberalization, and the state began to license the first private banks. This wave of deregulation, together
with India's rapid economic development, has transformed the banking sector in
the last two decades, increasing the level of growth and competition.
Despite the liberalisation, there remain restrictions on foreign ownership of India's private sector banks. Currently, foreign ownership not exceed
74% of a bank's capital, and individual foreign investors' holdings are capped at 10%. Foreign banks operating in the country must be run as a branch of
their foreign headquarters rather than as a wholly-owned Indian subsidiary, although there are reports that the RBI is considering changes in this area.
Indian banks are reliant on deposits rather than wholesale markets
for their funding to a great extent, which has protected them during the years of the
global financial crisis. However, the Economist magazine has recently raised
concerns that Indian banks have a bigger bad-debt problem than their official figures
suggest, raising the prospect of financial instability in the near future,
particularly among the smaller state banks.
Sustainability and reform initiatives
Sustainability initiatives are not advanced within the Indian banking sector. A 2011 journal article observed that of the five largest Indian banks, note had publicly reported on their sustainability performance.
In a circular in December 2007, the RBI asked all commercial banks to integrate aspects of CSR into their operations. However so far, no mandatory guidelines have been put in place.
In June 2013 IDFC Ltd became the first Indian financial organisation to sign up to the Equator Principles. IDFC is also India's only signatory to the Principles for Responsible Investment. Yes Bank is the only banking-sector signatory to the Global Compact, although there are five other Global Compact signatories in the wider financial services sector.
Co-operative banks have a significant role in the Indian market,
both in urban and rural banking, and their history in India dates back to the
end of the 19th century. Co-operatives represent around 30% of
Indian banks by number, although they are typically small in size, and account
for only 3% of market share (D&B).
Population: 1,241 million
GDP: 1.84 trillion USD (2011)
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