The Development of Commercial Banking in India

Introduction

The modern economic world considers banking systems as very important factors in business, industries and trade. It is also considered as a commercial agency. There is a new region of modern banking that emerged as a result of the Industrial Revolution as a need for the new economic society and to help promote the economy of countries. Countries have been giving much interest to banking development by enhancing their banks with new technologies, services, online services and by having a diversity of banking such as commercial banking and specialized banking such as Islamic banking and housing banking. Modern trends have been used to develop banking industry all over the world. Societies changed a lot recently which resulted in new needs for individuals regarding banking transactions and services which made it urgent to develop the banking industry to cope with the information technologies in everything. Countries that sought competitive advantage in the banking industry tended to develop the services of banks and to make a diversity of banks that can satisfy the needs of all social scales. Banking systems have changed to cope with technologies and facilitate banking delivery processes. The current assignment is discussing banking development through a country which is considered a leading country in banks development. This country is India. India has changed a lot of its banking industry strategies by expanding the base of its commercial banks and having many specialized banks. The assignment provides a background of the Indian commercial banking, a critical discussion for the development of Indian commercial banking and the development of its specialized banking. (Rao, 2007)

The Development of Commercial Banking in India

A commercial bank is very essential in the banking industry of any country as it provides capital and other needs for businessmen so that trade, agriculture and other industries can be developed. A commercial bank helps in the development of foreign trade, money transfer and production support. The commercial banking sector in India witnessed reforms that occurred in two phases, the first phase followed the Report of the Committee on Financial System, 1992 and it was concentrating on strengthening measures as well as enabling them. This phase witnessed developments such as: adopting new agricultural technology known as the green revolution and nationalizing 14 commercial banks in 1969 and another 6 banks in 1980. Agricultural credit and rural credit were reformed by using a Multi Agency Approach (MMA) and then agricultural finance was well helped by commercial banks. This period witnessed establishing of two new institutions which were the farmers' service society and the regional rural banks. Reforms witnessed a second phase that was following the Committee on Banking Sector Reforms recommendations in 1998 as this phase stressed on aligning the Indian standards with the international best practices through improving transparency levels and improving disclosure standards as well. This followed the banks nationalization phase in 1969 during the last decades, specifically the last four decades. India has a commercial banking system that developed to be branched to two main parts; scheduled banks and non scheduled banks. Scheduled banks include scheduled cooperative banks and scheduled commercial banks which include four types of banks which are :Public sector banks such as SBI state bank of India, private sector banks which turned to be old ones and new ones which mean those banks established after 1991, foreign banks in India and the regional rural banks that refer to the banks that help farmers in rural areas by credits and other aids. The mentioned Indian banks are under the Companies Act except the foreign banks. The scheduled banks mean the banks registered under the Second Schedule of the Banking Regulation Act of 1965 under the conditions of : having a capital which is paid up and less than 500,000 Rs of reserves, satisfying the Reserve Bank of India. (Nandy, 2010) The development of commercial banks of India included developing human resource and its management so as to promote the banking industry to reach best levels of services. India has a changing economic scenario which forces banking systems to cope with it by being supported with strong bases of human resources especially in commercial banks as they need an environment of service oriented business which in turn need good bases of business human resources, well trained employees, good business environment and a good working environment with employees who really belong to the business. (Rohmetra, 1998)

The Development of Specialized Banking in India

Specialized banks of India are various are of all types of financial institutions. These institutions are providing various financial services according to the specialty of the bank. These banks provide their clients with services as well as participating in the India economic developments through many certain missions. There are some Indian financial institutions that their work is on both the central level and the state level such as : Industrial Development Bank of India, The Industrial Financial Corporation of India, ICICI and Export Import Bank of India. Specialized banks developed to meet the needs of the clients and there are some of them mainly establishes for serving clients such as institutions set for providing services for their clients in specific domains such as housing, agriculture, railway, scale business, roads, power, shipping, Islamic services and others. There are some specialized financial institutes in India that witnessed developments in guaranteeing products to export companies such as India Ltd, Export Import Bank of India and Export Credit Guarantee Corporation of India. There is a great growth in the Indian Banking Sector that helped the Indian society to progress and enhanced its economic growth. Rural banking in India has improved for providing poor rural societies with services and small loans and such development was under the umbrella of the Reserve Bank of India RBI.

The RBI has shared a lot in the development of India specialized banks as it prepared a panel led by Nachiket Mor as this panel had a goal of letting specialized banks be catered to low income households. Such specialized banks will provide all Indian citizens with the chance of having a bank account in 2016 in addition to facilitating payment, deposit and withdrawal operations. Among these specialized banks that the panel provides are the Payment Banks which enable small projects of low income households to be set up by the help of payment services the banks provide. (Jagranjosh, 2014)

Among the specialized banks in India is the National Housing Bank NHB which helps a lot in promoting the housing development in India. This bank witnessed great progresses and developments as since 1999, the bank has witnessed many reforms and progress as the bank is following a plan of adding new technologies and techniques for adapting commercialization as there are programs for promoting farming systems, getting experts from outside India and using advanced banking technologies to provide the best services for its clients. (agritech, 2014)

Islamic banking is a type of specialized banks that India is taking serious steps towards establishing such type there to provide the Islamic banking services for Indian citizens. This type of banks is not going to accept deposits but it will be only used for investments and this will increase the venture capital activity of banking industry in India. The Reserve Bank of India (RBI) has already started an era of reviewing and studying setting up Islamic banks in India and its regulations as India is a country that contains many Muslims who will welcome these types of specialized banks that can provide services of Islamic banking as Murabaha and others. An internal committee has been set up by the central bank of India to discuss the matter and examine it according to everything required to achieve it. There are some countries that practice Islamic banking in the Middle East and other areas of the world and they are set following Laws of Shariah and this Indian model will be different from conventional banking in two major things which are not allowing receiving or paying interests and investment prohibition in any matter that Muslims consider sinful such as trading in alcoholic substances, making them, doing pornography or gambling activities. Islamic banks need discussing and relooking into their regulations which is very important before setting them up and this matter was revived with the new development of the Indian Central Bank which witnessed opening many differentiated banks with great diversity in specialties in India such as payment banks and smaller banks and Islamic banks as a start for a new era of banking development in India. Reforms in the Indian banking sector involved developing new types of specialized banks such as Islamic banks and others.    (firstpost, 2014)

Diversity in the Indian banking and the new developments also occurred in new private banks and also foreign banks which are also considered types of specialized banks and India is witnessing great developments in such banks as after 1993, there have been many of such banks serving many people which raised the competition among banks and in turn enhanced the Indian economic society a lot. Deregulation of interest rates for both deposits and also for advances raised the competition between the various types of specialized banks and other banks as well. Commercial banking also revived as a result of this and this also created a new space for emerging new specialized financial institutions such as mutual funds and housing financial companies and others as banks sponsor them and this began since 1996 and 1997 and developed to reach a good level today. Another type of specialized banks in India that the Indian government has stated its launching is the new Private Local Area Banks(LABs). Rural savings will be much helped by such banks as they could be easily mobilized and channeled within local areas into investments. There are set guidelines that the RBI has issued regarding establishing these banks and this was since 1996 and were approved then that seven of these LABs can be set up in the private sector. Then the RBI agreed that five LABs can be licenses in Andhra Pradesh, Karnataka, Rajasthan, Punjab and Gujarat. The guidelines for establishing these banks that were issued by the RBI in the year 1996 provided a chance for new investments and developments of the Indian banking industry in general and in developing of specialized banks specifically and this lead to great development in Indian economy and trade.(Shodhganga, 2014)

Conclusion    

Banking industry is considered a great source of refreshing the business market in any country and this made all countries give great interest and care for developing their banking industry through developing the banking systems, banking services, updating the technologies used in these banking institutions and training their employees on using new and modern banking systems. This evolution helped both clients and banking systems and this raised the space for competition among banks which could be of any type. Commercial banks have great roles in upgrading the economic levels in any society as they can provide many services for business entities and businessmen whether for small or huge projects that help governments develop and progress. India is one of the most leading countries in developing its banking system and in creating new reforms in the old banking systems to refresh and promote its commercial life and economy. India is a country that has a good base of commercial banks in addition to the many types of specialized banks such as Housing banks and Import Export banks and others. India is thanked that it is also continuing in creating new specialized banks such as Islamic banks for example which is a matter that attracts more clients and lets more individuals share in developing the economy of India. The RBI has many good steps and participated a lot in developing Indian banking through creating many specialized banks and also developing and reforming the existed Indian banks.