financial services reforms in india
TRANSCRIPT
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Alliance Business SchoolBangalore, India
San Jose State University, USA
Summer Study Tour : July 24, 2008
Financial Services in India
Prof Chowdari Prasad
http://www.absindia.org/index.html -
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Financial Services : IFS 203/30/09
Flow of Presentation
Indian Rupee, US Dollar, Savings Five Year Plans in India Indian Financial System
RBI, SBI, Public, Private and Foreign Banks Financial Sector Reforms 1991, 1993 . WTO and Financial Services 1995
Financial Savings & Market Share Data Financial Services Products References
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Financial Services : IFS 303/30/09
The Indian Rupee in 9 Denominations
(1,000 / 500 / 100 / 50 / 20 / 10 / 5 / 2 / 1) The Rupee is relatively
confined to India, and is notused extensively in any othercountry
Later years of British colonialrule: Pegged to gold standardb/w of Great British Pound
1966: de-pegged from theBritish Pound; pegged to theUS Dollar
1971: de-pegged from USDollar (b/c US$ was tanking) Today, the RBI conducts a
managed float on the INR /USD exchange rate; INR / EURand INR / JPY are marketdetermined
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Financial Services : IFS 403/30/09
Distribution of Financial Savings
- Household Sector in India Currency .. .. .. 13 % Bank Deposits . .. .. 28 %
Non Banking Deposits .. 14 % LIC Policies & UTI .. .. 11 % PF & Pension Funds.. .. 20 % Claims on Government .. 9 % Shares and Debentures ... 5 % T O T A L .... 100%
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Financial Services : IFS 503/30/09
Rupee, Dollar and Values
1 USD = 40 INR (approx) 1 K = 1,000 (One Thousand)
1 Lac = 1,00,000 (One Hundred Thousand)
1Million = 10 Lacs (10,00,000) 1 Crore = 100 Lacs or 10 Million ( or 1,00,00,000)
1 Billion = 100 Crores (1,000 Mn or 1,00,00,00,000)
So, USD 1 Bn = INR 4,000 Crores or
INR 1 Crore = USD 250,000 (approx)
http://images.google.co.in/imgres?imgurl=http://www.gold-prices.biz/wp-content/img/2007/08/us-dollar-index-2-16-august-2007.JPG&imgrefurl=http://www.gold-prices.biz/the-us-dollar-index-is-what/&h=482&w=460&sz=55&hl=en&start=18&tbnid=m4YQrpnNm7qIXM:&tbnh=129&tbnw=123&prev=/images%3Fq%3DUS%2BDollar%26gbv%3D2%26hl%3Den%26sa%3DGhttp://www.freefoto.com/images/04/28/04_28_47---US-Dollar-Bills_web.jpg -
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Financial Services : IFS 603/30/09
Five Year Plans in India
I Plan (1951 - 1956)
II Plan (1956 - 1961) III Plan (1961 1966)
Plan Holiday 1966-69
IV Plan (1969 1974) V Plan (1974 1979)
Break 1979 - 1980
VI Plan (1980 1985)
VII Plan (1985 1990) Break 1990 - 1992
VIII Plan (1992 1997)
IX Plan (1997 2002) X Plan (2002 2007)
XI Plan (2007-2012)
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Financial Services : IFS 703/30/09
Growth of GDP and major Sectors
(% per year)
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Financial Services : IFS 803/30/09
Indian Financial System
MoF,GOI, New Delhi
RBI/
SIDBI/NABARD
SEBI / NHB /
IRDA / PFRDA
DevelopmentFinance Institutions
IFCI, IDBI, ICICI,IIBI, IDFC
EXIM Bank, IL&FS,
Banks SB Group,Public / RRBs /
Private-Old & New/Foreign / LAB / Coop
NBFCs, Chit Funds,
Nidhi Cos, Postal /
Natl Small Savings /Ins Cos/HFCs/CRAs/
Credit Card Cos
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Financial Services : IFS 903/30/09
Reserve Bank of India
Scheduled Banks
Commercial Banks Co-operatives
RRB's (96) & LABs (4)Foreign Banks
(29)
Public Sector Banks(28)
StateCO-operatives
(16)Urban
Co-operatives(52)
Private Sector Banks(25)
New (8)Old (17)
IDBI BankState Bank of India& Associates (8)
Nationalised Banks (19)
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Financial Services : IFS 1003/30/09
The Banking Regulator - RBI Reserve Bank of India
(RBI): The Central Bank Controls Currency (Rupee) Manages Foreign Exchange
Supervises and regulates theFinancial System Promotes Economic
Development Banker to the Central
Government Headquarters in Mumbai,
and 22 regional branches URL www.rbi.org.in
http://www.rbi.org.in/http://www.rbi.org.in/ -
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Financial Services : IFS 1103/30/09
Reserve Bank of India Central Bank of the country
Imperial Bank of India handled the functions earlier
Hilton Young Commission recommendations
The Reserve Bank of India Act, 1934
Started as Share Holders Bank : Apr 01,1935
The Banking Regulation Act, 1949
RBI was nationalised in 1949
Accounting Year July 01 to June 30 Regulator, Adviser, Banker, Lender, etc
Set up DICGC,UTI, IDBI, NABARD, SIDBI, EXIM
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Financial Services : IFS 1303/30/09
Indian Financial System
Commercial Banks28 Public Sector (8 SB Group,19 Nationalised & IDBI Bank)
25 Private Sector (17 Old and 8 New)2,800 plus Co-operative Banks !96 RRBs, 4 Local Area Banks !!
29 Foreign BanksMore than 70,000 bank branches Average popln served per branch : 15,000 !!!
Over 30,000 ATMs on-site, off-site & Bio-Metric
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Financial Services : IFS 1403/30/09
Indian Financial System (2)
Development Finance InstitutionsLIC, GIC & its 4 SubsidiariesUTI, DICGC, ECGC, EXIM Bank, ICICI,
IFCI, IDBI, IIBI, NABARD, SIDBI, NHB,
SHCIL, NSDL, CDSL, IIFCL, IRFCSFCs, SIDCs, ITCOs, AFC, etcSTCI, DFHI, IDFC, IL & FS, etc
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Financial Services : IFS 1503/30/09
Indian Financial System (3)
Government SectorNational Savings Organisation
(NSCs, NSS, IVPs, KVPs, PPF etc)
Post Office Savings, RD Accounts
Employees Provident Fund Orgn., etc.
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Financial Services : IFS 1603/30/09
Indian Financial System (4)
Non Banking Financial CompaniesNidhi Companies
Chit Fund Companies
Investment CompaniesHire Purchase Companies
Lease Finance Companies
Housing Finance Companies
Stock Exchanges,., Broking Cos
Credit Rating Agencies, RNBCs., MFIs.,
Mutual Funds, CIBIL, ARCs, Insurance Cos
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Financial Services : IFS 1703/30/09
State Bank Group
STATE BANK OF INDIA 1955 Seven Subsidiaries in 1957
STATE BANK OF HYDERABADSTATE BANK OF MYSORESTATE BANK OF BIKANER & JAIPURSTATE BANK OF TRAVANCORESTATE BANK OF INDORESTATE BANK OF PATIALASTATE BANK OF SAURASHTRA
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Financial Services : IFS 1803/30/09
20 Public Sector Banks
14 (July 1969) + 6 (February 1980) 1 (New Bank of Indiamerged with PNB in 1993) = 19 NATIONALISED BANKS
4. ANDHRA BANK5. ALLAHABAD BANK6. BANK OF BARODA7. BANK OF INDIA8. CANARA BANK9. CENTRAL BANK OF INDIA
10. DENA BANK11. INDIAN BANK 20. IDBI Bank
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Financial Services : IFS 1903/30/09
17 Old Private Sector Banks
Bank of Rajasthan Catholic Syrian Bank City Union Bank Ltd
Devment Credit Bank Dhanalakshmi Bank Federal Bank J & K Bank Ltd
Karnataka Bank Ltd Karur Vysya Bank Ltd
10. Lakshmi Vilas Bank
11. Nainital Bank Ltd
12. Ratnakar Bank Ltd
13. Sangli Bank Ltd
14. SBI Comml & Intl Bank
15. South Indian Bank Ltd
16. TN Mercantile Bank Ltd
17. ING Vysya Bank Ltd.
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Financial Services : IFS 2003/30/09
New Private Sector Banks - 1994
1. Centurion BANK OF PUNJAB Ltd.***2. ICICI Bank (taken over Bank of Madura and ICICI, etc)3. IDBI Bank (merged with IDBI in March 2005; taken over United Western
Bank in 2006)4. INDUSIND BANK (taken over Ashok Leyland Finance Ltd 04)5. HDFC BANK (taken over Times Bank)
6. UTI BANK LTD (now named as AXIS Bank)7. KOTAK MAHINDRA BANK (NBFC converted in Mar03)8. YES BANK (off shoot of Rabo Finance Corporation : commenced
operations in September 2004; IPO in Apr 05)
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* TIMES BANK (Since merged with HDFC Bank-2000)** GLOBAL TRUST BANK (since merged with OBC 2004)
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*** Centurion Bank and Bank of Punjab Ltd merger in 2005 (CBOP)
**** Lord Krishna Bank Ltd merged with CBOP in 2007
***** CBOP (with Lord Krishna Bank) merged with HDFC Bank in 2008
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Financial Services : IFS 2103/30/09
Foreign Banks in India 29 Foreign Banks having 273 Branches from 21
Countries; The Top 4 banks being Standard Chartered Bank (UK) 83 brs
HSBC Bank (Hong Kong) 47 branches Citibank NA (USA) 39 branches ABN AMRO Bank NV (Netherlands) 28 brs
Remaining 25 Foreign Banks 80 Branches http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/814
http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/81450.pdfhttp://rbidocs.rbi.org.in/rdocs/Publications/PDFs/81450.pdf -
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Financial Services : IFS 2203/30/09
Financial Sector Reforms 1991
Geographical spread of Bank branches Directed Investments / Credit Programs
Administered Rates of Interest
Problems of Recovery of Loans
Deterioration in Quality of Assets/Loans
Erosion of Profits
Low level of Computerisation
Trade Union Issues
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Financial Services : IFS 2303/30/09
Indian Banking Sector - Reforms
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Financial Services : IFS 2403/30/09
Banking Reforms 1993 2 L-P-G Policy of GOI since 1991 Technological Changes all over New Products and Services : Competition Narasimham Committees - I / II on Financial / Banking
Sector Reforms (1991 & 1997) Capital Adequacy : IRAC Norms : NPAs Priority Sector Loans: Reduce from 40 to 10% Reduced SLR (from 40% to 25%); CRR (15% to 4%) Provisioning for all types of Assets (Standard & NPAs)? Benchmark Prime Lending Rates Enactment / Amendments to various laws Ombudsman Scheme, 1995
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Financial Services : IFS 2503/30/09
Banking Sector Reforms 3 Market determined Rates of Interest
No directed lending or investments Organisational Changes : Transparency 4 way classification of Loan Accounts Provisioning for Losses o/a NPAs DRTs and DRATs and enactment, Lok Adalat
System and now Corporate Debt Reconstruction ALM and Risk Management (1999) Know Your Customer (KYC) in Banks (2002) Non Performing Assets definition revised from 4
(four) quarters (1993) dues in Principal & Interestto 3 (three) (1994) to 2 (1995) quarters and nowfrom April 01, 2004 just 90 days / 1 quarter !
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Financial Services : IFS 2603/30/09
Banking Sector Reforms .4
SARFAESI Act in 2002 Asset Reconstruction Cos Credit Information Bureau in 2005, SMERA in 2006 Raghuram Rajan Committee on Financial Sector
Reforms in 2007 Basel II norms for Bank Supervision from 2008 ! More Foreign Banks / Branches from 2009 Cross Selling, CRM, DSAs, Outsourcing, Internet Banking, Retail Banking, Mobile Banking Customer Service, Customer Care, Customer Delight Outsourcing, Franchisees, Recovery Agents,
Business Correspondents, allowed
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Financial Services : IFS 2703/30/09
WTO & Financial Services-1995
Opening up for Foreign Banks NBFCs in collaboration with MNCs
Privatisation of Insurance Industry etc
Gradual reduction in rates of Interest Greater inflow of FDI in Banking Sector
Increase in inflow of FII investment
Greater use of Technology &Competition
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Financial Services : IFS 2803/30/09
Rs.15,610Rs.66NAPER CAPITA CREDIT
Rs.21,388Rs.88NAPER CAPITA DEPOSIT
NANA9.6DEPOSITS AS % OFNATIONAL INCOME
19,49,5673,599547ADVANCES (IN CRORES)
25,98,8234,646881DEPOSITS (IN CRORES)
1664153POPULATION PER BRANCH(THOUSANDS )
30,4611,833NARURAL BRANCHES
70,711*8,2622335BRANCHES* (+ >30,000 ATMs)
2008993NO OF COMMERCIAL BANKS
March - 07June-691950-51PARAMETERS
PROGRESS OF COMMERCIAL BANKING
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Financial Services : IFS 2903/30/09
7445,17,45119,23,19225,94,2592006-07
5314,74,0525,11,4349,62,6182000-01
603,08,8421,16,3011,92,5411990-91
6663,35925,37137,9881980-81
7910,5904,6845,9061970-71
773,0721,3361,7361960-61
621,4295478821950-51
Credit/Deposit
Ratio (%)
Total Business(Rs. in Crores)
Credit(Rs. inCrores)
Deposits(Rs. in Crores)
Year
EVOLUTION OF BANKING SINCE 1950
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Financial Services : IFS 3003/30/09
601,54,785
(8.1%)2,58,128(10.3%)
30,461(44%)
Rural Centres
531,89,783(9.73%)
3,56,827(13.7%)
16,035(22%)
Semi-urban cenres
8116,04,999
(82%)
19,83,868
(76%)
24,215
(34%)
Urban Centres inclusiveof metro & other
Centres
8415,08,095(77.3%)
17,89,500(68.8%)
17,578(24.8%)
Top 100 Centres(inclusive of metroCentres)
8812,88,833
(66%)
14,52,599
(56%)
11566
(16.3%)
Metro Centres
9311,03,937
(56%)11,89,536
(45%)6,795
(9.62%)*
Top 6 metros
7519,49,56725,98,82370,711All India
Credit/Deposit
ratio(%)
Credit(Rs. In Crores)
Deposits(Rs. In Crores)
No of bankbranches
Geographical Segment
BANKING PROFILE AT METRO / URBAN / SEMI URBAN / RURAL (AS ON 31-3-2007)
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Financial Services : IFS 3103/30/09
60401,54,785
(8.1%)59,293
(10.4%)2,58,128(10.3%)
1,47,950(14.6%)
30,461(44%)
32,538
(49%)
RuralCentres
53321,89,783
(9.7%)64,318(11%)
3,56,827(13.7%)
1,98,631(19.6%)
16,035(22%)
14,608
(22%)
Semi-urbancenres
816616,04,999
(82%)
4,44,095
(78%)
19,83,868
(76%)
6,64,879
(66%)
24,215
(34%)
19,109
(29%)
UrbanCentres
inclusiveof metro& others
847115,08,095
(77%)4,27,630
(75%)17,89,500
(68%)5,95,794
(59%)17,578(24%)
14,866
(22%)
Top 100Centres(inclusive ofmetros)
888112,88,833
(66%)3,47,772
(61%)14,52,599
(56%)4,29,960
(42%)11,566(16%)
8,617(13%)
MetroCentres
755619,49,5675,67,70625,98,82310,11,46070,71166,25
5
All India
Mar2007
Sept2001
March2007
Sept.2001
March2007
Sept.2001
March2007
Sept.2001
% of CDRatio
Credit(Rs. in Crores)
Deposits(Rs. in Crores)
No. of BranchesGeographica
lSegment
Growth of Banking Industry over the last five and half years
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Financial Services : IFS 3203/30/09
Electronic
Banking
ATMs
Head Office
BranchBanking
Branch 1
Branch 2Branch 3
Branch 4
Branch 5
Branch 6
Branch n
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Financial Services : IFS 3303/30/09
Cheque Truncation
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Financial Services : IFS 3403/30/09
TECHNOLOGY & DEVELOPMENTS
ALPMs CLEARING HOUSE CAR, CRR, SLR, PS, NPAs CREDIT/DEBIT CARDS NICNET, I-NET, RABMN
INFINET, RBINET BANKNET, NDS, SFMS MICR, ATMs, SWIFT DEMAT, IT ACT-2000 INTERNET BANKING
ECS, EFT, SEFT, RTGS CROSS SELLING SECURITISATION
ALM & RM, MIS CRM, KYC, AML Core Banking Solutions KISAN /SME CARD CREDIT INFO BUREAU
DISASTER MANAGEMENT CREDIT RATING CYBER LAWS CYBER CRIMES HACKING,
PHISHING, PHARMING, TROJAN,
SKIMMING, ETC SMART CARDS Cheque Truncation
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Financial Services : IFS 3503/30/09
ICICI Bank A Case Study
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Financial Services : IFS 3603/30/09
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Financial Services : IFS 3703/30/09
Market Shares in Banking (excluding R R Bs)
6.6011.3218.824.94Foreign (34)
10.9013.139.518.24New Private (9)
5.967.182.716.51Old Private (21)
44.8937.2754.9749.02Nat Banks (19)
28.0328.104.3327.85SB Group (8)
TotalAssetsReservesCapitalDepositsType of Banks
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Financial Services : IFS 3803/30/09
Financial Services / Products
Deposits, Loans and Remittances Letters of Credit, Bank Guarantees Credit (Debit, Smart, Charge, Combo) Cards
Insurance Life and Non-Life, Term Insurance Safe Deposit, Safe Custody and SD Lockers Portfolio Management, Sale of Gold, Micro Fin
NRI / Tax Advisory Services, WealthManagement, Personal Finance to HNIs
Rail ticket booking, payment of Utility bills
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Financial Services : IFS 3903/30/09
Financial Services...2
Lease, Hire Purchase, Bill Discounting Factoring, Forfaiting, Securitisation, etc
Asset Reconstruction Companies
Car / Consumer Loans, Housing finance etc Demat facility, e-Stock Broking, IPO Fin., etc
Forex Broking, Merchant Banking, M & A
Mutual Funds, Infrastructure Funding
Private Equity, Venture Capital
Credit Rating, Credit Info, Bancassurance
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Financial Services : IFS 4003/30/09
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Financial Services : IFS 4103/30/09
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Financial Services : IFS 4203/30/09
Bank Credit (% to GDP)
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Financial Services : IFS 4303/30/09
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Financial Services : IFS 4403/30/09
B ki A t Q lit
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Financial Services : IFS 4503/30/09
Banking Asset Quality
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Financial Services : IFS 4603/30/09
References...Books
Avadhani, VA - Marketing of Financial Services Guruwamy S - Financial Services and System -Thomson Learning, Asia
Jessica Keyes, Editor - Handbook of Technology in
Financial Services 1999 John Marsh - Managing Financial ServicesMarketing : 1988 /1992
Khan, M Y - Financial Services, TMH
Meiden A - Marketing Financial Services Ravi Shanker- Services Marketing : (2002) Trend and Progress of Banking in India : RBI - 2007
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Financial Services : IFS 4703/30/09
References...Papers/Articles...(2) Chowdari Prasad - Impact of Economic Reforms on Indian
Banking Jan 2002 Chowdari Prasad & KSS Rao Can Public Sector Banks
compete with Foreign / Private Banks in India? A StatisticalAnalysis December 2003
Chowdari Prasad Functioning of Foreign Banks in India February 2004 Chowdari Prasad & KSS Rao Private Sector Banks in
India A SWOT Analysis Dec 2004 Chowdari Prasad, Biswajeet Mohanty & Umesh Nazkani
Problems and Prospects in Retail Banking in India April2005
Chowdari Prasad & KSS Rao Sustainability of ForeignBanks in India A Statistical Analysis December 2005
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Financial Services : IFS 4803/30/09
Questions please?
THANK YOU EVERY ONE
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Financial Services : IFS 4903/30/09
CHALLENGES AND POTENTIAL OFINDIAS BANKING SYSTEM
R B k f I di
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Financial Services : IFS 5003/30/09
Reserve Bank of India
Scheduled Banks
Commercial banks Co-operatives
RRB's (96)Foreign Banks
(29)
Public Sector Banks(28)
StateCO-operatives
(16)Urban
Co-operatives(52)
Private Sector Banks(25)
New (7)Old (18)
State Bank of India& associates (8)
Nationalised & PSB(20)
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Financial Services : IFS 5103/30/09
49.52.6530.14.1635.56.8
No. of HHs which
use bankingservices
285.367213.8319.19Total No. of HHs
% ofTotal
HHs
URBAN% of
Total
HHs
RURAL% of
HHsTotal
No.
Source: CENSUS OF INDIA 2001 Figures in Crore
USAGE OF BANKING SERVICES BY INDIAN HOUSE HOLDS (HHs)
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Financial Services : IFS 5203/30/09
51.346.551.32.60.22.4Delhi
21.318.647.21412.71.3Bihar
4035.249.010.36.73.6Karnataka
36.827.659.415.811.24.6West Bengal
44.141.953.025.820.65.2UP
37.829.950.39.75.93.8Gujarat
48.139.460.019.1118.1Maharashtra22.83017.714.28.35.9Tamil Nadu
3133.130.416.912.74.2AP
49.530.149.5192138.353.7India
TotalRuralUrbanTotalRuralUrban
Households Having BankAccounts (Per Cent)
No. of House Holds (inMillions)
Area
STATE-WISE USAGE OF BANKING BY HOUSEHOLDS
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Financial Services : IFS 5303/30/09
?609.6DEPOSITS AS % OF NATIONALINCOME
19,00,00019,49,567547ADVANCES (IN CRORES)
35,00,00025,98,823881DEPOSITS (IN CRORES)
?16153POPULATION PERBRANCH(THOUSANDS
?70,7112335BRANCHES
?20093NO. OF COMMERCIAL BANKS
VISION2010
March
2007
1950-51PARAMETERS
THE PAST & FUTURE TRENDS OF COMMERCIAL
BANKING
SECTOR WISE GROWTH RATES OF REAL GDP ( at 1999-2000 Prices)
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Financial Services : IFS 5403/30/09 9.409.007.50Real GDP at Factor Cost4
10.7014.2014.10Construction3.4
7.807.707.90Community ,Social andpersonal Services3.3
10.6010.908.70Financing, Insurance, Real Estate
and Business Services3.2
13.0010.4010.90
Trade ,Hotels, Restaurants,Transport ,Storage andcommunication3.1
61.8(11.00)
60.90(10.30)
60.20(10.00)Services3
7.405.307.50Electricity, Gas, and Water Supply2.3
12.309.108.70Manufacturing2.2
5.103.607.50Mining and Quarrying2.1
19.70
(11.00)19.40(8.00)
19.60(8.40)Industry2
18.50(2.70)
19.70(6.00)
20.20(0)Agriculture1.1
Agriculture and alliedActivities1
2006-072005-062004-05ParticularsS.No
(Percent)
SECTOR WISE GROWTH RATES OF REAL GDP ( at 1999 2000 Prices)
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Financial Services : IFS 5503/30/09
45271718194995338923366Thailand
62577017837357270969
SouthAfrica
15151154447958346127482714
RussianFederation
113268849115421952240Philippines
187721894115256190442714217773Mexico
39146332-28266Mauritius
39664624247332035543788Malaysia
52601896-597145-2977-4550Indonesia
79127549364307493084424138399China
6667717347077255042004860Chile
151931816610144165902245732779Brazil
4730427416522149216610418Argentina659854744585562654623584India
200520042003200220012000Country
FOREIGN DIRECT INVESTMENT($ millions)
FOREIGN PORTFOLIO INVESTMENT
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Financial Services : IFS 5603/30/09
566513191787539352901Thailand
72306661685-388-9624169
SouthAfrica
-2152334222626542150
RussianFederation
1461518501227125-202Philippines
3353-2522-123-104151447Mexico
36198-1-9-4Mauritius
-120042391340-5500Malaysia
-16520431131877442-1021Indonesia
2034610923772922498496912China
16358318-320-217-427Chile
645120812973198124813076Brazil
-48-8665-11631-3227Argentina1196888358216102228532345India
200520042003200220012000Country
FOREIGN PORTFOLIO INVESTMENT($ millions)
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8/14/2019 Financial Services Reforms in India
57/70
Financial Services : IFS 5703/30/09
2,51,3305th October-07
1,99,1792007
1,51,62220061,41,5142005
1,12,9592004
54,7162002
38,6942000
22,5171995
10,1281993
TOTALAS AT END OF MARCH
US $ million
FOREIGN EXCHANGE RESERVES
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8/14/2019 Financial Services Reforms in India
58/70
Financial Services : IFS 5803/30/09
At about $900 billion, India's stock of financialassetsincluding bank deposits, equities, anddebt securitiesis one-fifth the size of China's.
By 2010, China's financial stock will reach $9trillion, while India's will remain around $ 1.9
trillion.
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8/14/2019 Financial Services Reforms in India
59/70
Financial Services : IFS 5903/30/09
India's financial system is more effective than China's,
because the market share of more efficient foreign and
privately owned banks in India has crept up to 25
percent.
Many nonperforming loans have been cleaned up,
and while the true figure is hard to determine, they are
now estimated at around 9 percent of all lending,
compared with up to 40 percent in China.
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8/14/2019 Financial Services Reforms in India
60/70
Financial Services : IFS 6003/30/09
14.00USA25.6JAPAN
15.60TURKEY27.8RUSSIA
18.20MEXICO30.5CHILE
20.10ITALY31.9SOUTH KOREA
21.10FRANCE32THAILAND
22.10GERMANY42.6MALASIA
32.40INDIA46.7SINGAPORE
25.10BRAZIL47.6CHINA
DOMESICSAVINGS
AS% OFGDPCOUNTRY
DOMESICSAVINGS
AS% OFGDP
COUNTRY
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8/14/2019 Financial Services Reforms in India
61/70
Financial Services : IFS 6103/30/09
224UNITED STATES144MALAYSIA
168UNITEDKINGDOM
319JAPAN
57TURKEY47INDONESIA
111THAILAND136GERMANY
51INDIA110FRANCE
185SOUTH AFRICA86CHINA
21RUSSIANFEDERATION
206CANADA
35MEXICO83BRAZIL
DOMESICCREDIT AS% OF GDP
(2005)
COUNTRY
DOMESICCREDIT AS% OF GDP
(2005)
COUNTRY
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8/14/2019 Financial Services Reforms in India
62/70
Financial Services : IFS 6203/30/09
DISTRIBUTION OF HOUSEHOLD SAVINGS
DISTRIBUTION OF HOUSEHOLD
SAVINGS
PERCENTAGE OF SHARE
SAVINGS IN PHYSICAL ASSETS
55%LAND
HOUSES
CATTLE
GOLD
SAVINGS IN FINANCIAL ASSETS
45%
NET DEPOSITS
NET CLAIMS ON GOVT
PROVIDENT FUND & PENSIONS
LIC FUNDS
CURRENCY
SHARES
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8/14/2019 Financial Services Reforms in India
63/70
Financial Services : IFS 6303/30/09
Why is the stock of financial assets so small?
Not because we save too little: although the country's
gross national savings rate is half of China's, it isn'tbad by international standards.
Despite the fact that we should save more, the main
challenge is to capture more of the existing savings
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8/14/2019 Financial Services Reforms in India
64/70
Financial Services : IFS 6403/30/09
Instead of putting money into financial assets, Indianhouseholds invest more than half of their savings in physical ones
such as land, houses, cattle, and gold . In rural areas, theproportion is even higher. In fact, India's peopledenied ofaccessibility to formal financial systemare the world'slargest consumers of gold at 800 tonnes per annum.
They possess $200 billion of it, equal to nearly half of thecountry's bank deposits, and last year bought $10 billion worth,nearly the amount of the foreign direct investment India(13 Billion$ in 2006)received. Households could earn higher returns byinvesting in financial assets, and the country would bebetter off if savings were pooled to finance more productive
investments.
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8/14/2019 Financial Services Reforms in India
65/70
Financial Services : IFS 6503/30/09
The government reckons that $500 billionwill be needed over the 11th Five Year Plan to
upgrade the country's crumblinginfrastructure.
To sustain the GDP growth at above 9
percent and given today's investment rate of32 percentan additional $40 billion savingsper annum are required for infrastructurerequirements.
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8/14/2019 Financial Services Reforms in India
66/70
Financial Services : IFS 6603/30/09
Domestic savings are the only plausible source ofextra funding, so more of them must be mobilized.
Foreign direct investment alone won't fill the gap:although China is the world's largest recipient, forexample, the $60 billion FDI it received in 2004 wasonly 10 percent of domestic savings. Indias policy, in
contrast to China, remains still ambivalent about FDIin most sectors and FDI alone would not bridge thegap.
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8/14/2019 Financial Services Reforms in India
67/70
Financial Services : IFS 6703/30/09
More of the savings that India's financial systemcaptures could finance investment if banks reducedtheir cut from matching savers and users of capital.Intermediation costs remain high mainly because
productivity of most of Indian Banks is 10 percent of USlevels. India's new private banks achieved an averageproductivity of 55 percent of US levels.
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8/14/2019 Financial Services Reforms in India
68/70
Financial Services : IFS 6803/30/09
Domestic savings are the only plausible source ofextra funding, so more of them must be mobilized
Moving all Indian banks toward their productivity
potential of 90% of US levels - ambitious butachievable goal would unleash $2.5 billion a year insavings. Interest rates could fall by 1 percent
With full reform, it could generate up to 7.5 percent
of GDP and employ 1,500,000 people, as well asboost investment and growth throughout theeconomy.
Wh t ld b th f t lli
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8/14/2019 Financial Services Reforms in India
69/70
Financial Services : IFS 6903/30/09
What would be the factors propelling
changes in financial system?
Enhanced Customer Awareness
Growing contribution of Services to GDP
Infrastructural Requirements
Impact of WTO & Globalisation
Basel II Norms
Consolidation through M & As
Micro Finance Financial Inclusion
More Foreign Competition in 2009
Demands of Young Population
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70/70