1. The document discusses the performance of the Indian banking sector after economic liberalization in 1991. It analyzes key indicators like deposits, credit, branches, and priority sector lending from 1969 to 2008. 2. Major reforms included reducing reserve requirements, introducing prudential norms, interest rate deregulation, and allowing private sector banks. This increased competition and improved efficiency. 3. Post-liberalization, the banking sector saw rapid growth. Aggregate deposits and credit increased substantially. The number of bank offices and priority sector lending also grew significantly.

1. Banking sector performance
after 1991 economic
liberalization in India
1/27/2013
SUBMITED TO: Dr. Nilanjan Sengupta
SUBMITED BY:
SECTION (A)
GROUP NO.- ONE (1)
ABHISHEK MEHROTRA (003)
AMRITESH (005)
ANSHUL PANDEY (010)
APOORV SRIVASTAVA (008)
BHARAT SHARMA (011)
BISWAJITA MOHANTY (013)
LAKSHMI UNNIKRISHNAN W (038)

2. 2 Banking sector performance after 1991 economic liberalization in India
ACKNOWLEDGEMENT
The satisfaction that the successful completion of the task would be incomplete without
mentioning all those guidance and encouragements which crown the efforts with success.
First and foremost we would thank the lord Almighty for His grace, mercy without which
nothing would have been possible.
We sincerely bow with reverence to the sanctum of KIAMS for giving us an opportunity
to pursue our PGDM course.
We are indebted to the Director, Dr. Gopal Iyengar, for facilitating a congenial
academic environment in the college.
We will be obliged toDr. Nilanjan Sengupta who has given us the opportunity to make a report
on “Banking sector performance after 1991 economic liberalization in India”.
We would like to say thanks to each other for being patient while doing the group activity
and avoiding any type of plagiarism.
Last but not the least we would like to thank our parents and friends.
GROUP NO.- ONE (1)
ABHISHEK MEHROTRA (003)
AMRITESH (005)
ANSHUL PANDEY (007)
APOORV SRIVASTAVA (008)
BHARAT SHARMA (011)
BISWAJITA MOHANTY (013)
LAKSHMI UNNIKRISHNAN W (038)
January 27, 2013

3. 3 Banking sector performance after 1991 economic liberalization in India
INTRODUCTION
TherecannotbeadiscussiononfinancialsectorinIndiawithoutthementionof thebankingindustry.
Banking industryis considered as the backbone of Indian
economy.Afterliberalizationofthepoliciesbythegovernment,thebankshavetobe
morecompetitiveandperformance-oriented in thenewenvironment.Ithasbecome
quitedifficultforthemtosurvive,performandsucceedin themarket.Underthese
circumstances,thereisaneedtohavealookattheemergenceoftheIndianbanking systemrightfrom
itearly daystillnow.
LITERATURE REVIEW
Considerable work of research takes place on efficiency and profitability of banks of Indian
banks as well as other related fields like banking sector reforms etc. Hawast and John (1977) in
their study stated that bank profitability by cost control methods. Varde and Singh (1979) said in
their research that the reason of declining profitability of Indian banks during 1964-77 was low
spread, high manpower and other operational expenses. Shah (1979) linked profitability with
bank management, customer service and financial performance.Joshi (1986) stated the discussion
and trends in profits and profitability of banks since nationalization. Minakshi and Kaur (1990)
attempted to measure quantitatively the impact of the various instruments of monetary policy on
the profitability of banks. They found that banks rate and reserve requirements ratios have played
a significant role in having a negative impact on the bank’s profitability. Ojha (1992) in his study
attempted to measure the productivity of public sector commercial banks in India like total assets
per employee, total credit and deposits per employee, pre tax and post tax profits per employee,
ratio of establishment expenses to working funds and net interest per employee. The study of
Prajapati (1994) was a good attempt of post-liberalization researches made in the area for
analyzing the comparison between the performance and strategies of two banks, although both of
them operate in the similar microenvironment like common regulated borrowing and lending
rates, statutory reserve requirement, priority sector lending obligations etc. These are some
researches which is done and there are many other who have been contributing till now.
HISTORY OF INDIAN BANKING
Commercial banking has been one of the oldest business in India and the
earliestreferenceof commercialbanking inIndia canbe tracedin thewritings of Manu. The
establishment of the General Bank of India in the year 1786 marked the
developmentofastructuredbankingsysteminIndia.LatertheBankofHindustanand
BengalBankcameintoexistence.TheEastIndia Companyestablishedthreebanks.
Thesethreebankswereamalgamatedintheyear1920toformthenewImperialBank
ofIndia.TheImperialBankwasnationalizedandrenamedastheStateBankofIndia
withthepassingoftheActin1955.TheSwadeshiMovementwitnessedthebirthof
severalindigenousbanks,suchasPunjabNationalBank,BankofBarodaandCanara Bank. In order to
increase itscontrol overthebanking sector, the
GovernmentofIndiahadnationalized14majorprivatesectorbankswithdeposits
January 27, 2013

4. 4 Banking sector performance after 1991 economic liberalization in India
exceedingRs.500millionin1969.Thishadraisedthe numberofscheduledbank
branchesundergovernmentcontrolto84percentfrom31percent.
The presentbanking systemcan be classifiedinto thefollowing categories:
(i) Public SectorBanks
(ii) PrivateSector Banks
(iii) Foreign Banks
(iv) RegionalRuralBanks
(v) Co-operativeSectorBanks
(vi) DevelopmentBanks.
Whileseveralcommitteeshavegoneintotheproblemofcommercialbanksin
India,therecommendationsmadebythehighlevelcommitteesonthefinancialsector
reforms,chairedbyMr. M. Narasimham,laidthefoundationforthebankingsector reforms.
These were:
a) NarasimhamCommittee-I (1991).
b) NarasimhamCommittee-II (1998).
PHASES OF INDIANBANKING
TheIndianbankingsystemanditsregulationscanbebetterunderstoodwhen dividedinto
thefollowingtwo phases:
Post-Nationalization
Post-Liberalization.
Theeraofnationalizationcommencedin1969whenthecountry's14major commercial
bankswerenationalized.Incontinuationofthisprocess,6morebanks werenationalizedin1980. As
aresultofnationalization,theaggregatedepositsof
scheduledcommercialbanks(SCBs)whichstoodatRs.4,669croreduringJuly1969
touchedRs.2,33,753crorebytheendofMarch1992 (StatisticalTablesrelatingto Banks in India-
Various Issues, RBI).
Thepoorperformanceofthepublicsectorbankswasincreasinglybecomingan areaof
concern.ThecontinuousdeclineofprofitabilityandriseofNon-Performing Assets(NPAs)ofbanks
posedasignificantthreattothestabilityofthefinancial system. Till the early 1990s, the financial
sector could be described as a classic exampleof‘financialrepression’.
WHYLIBERALIZATION
TheGovernmentofIndiaframeditspoliciesintheyear1991-92,keepingin
viewthebenefitsofliberalization.Itwasexpectedthatintheprocessofopeningupits economy to the
outside world, increased competition could turn the banks more efficient, bring about
improvement and ultimately benefits the customers.
Someoftherootcausesthatwerebehindthedullperformanceofthebanks promptedthe
initiationof the bankingsector reforms.Someof these causes were:
Greateremphasison directedcreditprograms;
Regulatedinterestratestructure;
Excessiveregulationson organization'sstructureand managerialresources;
January 27, 2013

5. 5 Banking sector performance after 1991 economic liberalization in India
Lackof focus on profitability;
Lackof competition;
Lackof proper Accountingand Risk ManagementSystem;
Lackof operationaltransparency and
Excessivesupportfromgovernment.
Thereformswereinitiatedwithanaimtobringaboutaparadigmshiftinthe banking industry. Hence,
banking reforms were made an integral part of the liberalizationprocess.The
financialsectorreformsstartedin1991hadprovidedthe necessary platform for the banking sector to
operate on the basis of operational flexibility and functional autonomy; enhancing productivity,
efficiency and profitability.
IMPACTOFLIBERALIZATIONONTHEPERFORMANCE OF INDIANBANKING
Banking sector plays an important role in the economic development of a
country.ThebankingsectorreformsinIndiawerestartedasafollowupmeasureof
economicliberalizationandfinancialsectorreformsinthecountry.Thebankingsector
beingthelifelineoftheeconomywastreatedwithutmostimportanceinthefinancial
sectorreforms.ThereformswereaimedattomaketheIndianbankingindustrymore competitive,
versatile, efficient, and productive, to follow international accounting standards
andtofreefromthegovernment’s control. Thereformsinthebanking industry startedin theearly
1990s havebeen continuedtillnow.
TheIndianbankingregisteredtremendousgrowthinthepost-liberalizationera. Sincethe
beginningof1991,therehasbeenaseachangeintherule,regulation, organization,and scopeand
activitylevelofIndianfinancialsector.TheIndianbanking industryhaswitnessedarapidgrowth
aftereconomicreforms.Ithasshiftedfrom regulatedtode-regulatedmarketeconomyanddefineda
newroleforthebanks.All these reforms have changed the Indian banking market from ‘Sellers
market’ to‘Buyersmarket’.
The Narasimham Committee, 1991 h a d r e c o m m e n d e d several reformsi n
banking sectorwith thechangewind of financialsectorreforms.
Someof theimportantfinancialliberalizationmeasuresare:
Reductionin pre-emptionof funds throughreductionof CRRand SLR.
Introductionof prudentialprovisioning and CapitalAdequacy norms.
Phasingout thedirectedcreditprograms.
Deregulationof interestrates.
I n f u s i o n of competition(Entry of PrivateSector Banks).
Impartingtransparency.
Introductionof universalbanking.
Mergersand Acquisitions.
Developmentof technology.
Emphasison corporategovernance.
The winds of change gained momentum in the last few years, such as
globalizationofIndianeconomyandopeningupoffinancialservicesunderWTO.Itis expected that the
banking sector will undergo mergers and acquisitions (M&A), consolidation, globalization of
January 27, 2013

6. 6 Banking sector performance after 1991 economic liberalization in India
operations, development of new technology, best corporategovernancepracticesand
universalization.
Themainobjectiveofours istomakeasimpleassessmentoftheimpact
ofthereformsoftheIndianbankingsector.Ithasbeenmorethan18yearsofthestart of the
economicreformsin Indiaand financialsector reformswere one of theimportant partsof
theprocess.
The present chapter captures the impact of economic liberalization on the
performanceofIndianbankingsectorinthelastdecadeandalsotheimpactofbanking
sectorreformsontheIndianbankingsector. Acomparativeanalysisofvariousbank groups with
respect to different variableshasbeentaken. Important indicatorsof scheduledcommercialbanks
(SCBs) areanalyzedfrom1969 to 2008.
Scheduled CommercialBanks at a Glance
(InRs. Crores)
Indicators June March March March March March
1969 2001 2005 2006 2007 2008
Numberof Commercial
89 300 289 222 183 174
Banks
(a)Scheduled
73 296 285 218 179 170
CommercialBanks
(b)Non-scheduled
16 4 4 4 4 4
CommercialBanks
Numberof BankOffices
8262 67937 70373 71685 74346 77773
inIndia
PopulationperOffice(in
64 15 16 16 15 15
thousand)
AggregateDepositsof
SCBs inIndia 4646 989141 1700198 2109049 2611934 3196940
(a)DemandDeposits 2104 159407 248028 364640 429731 524310
(b)TimeDeposits 2542 829734 1452171 1744409 2182203 2672630
CreditofSCB inIndia 3599 529271 1100428 1507077 1931190 2361913
DepositsofSCBsas
percentageto GNP 15.5 56.0 60.0 65.4 70.1 74.7
CreditDepositRatio
(Percent) 77.5 53.5 62.6 70.1 73.5 74.6
SCBsAdvancesto
PrioritySector(Rs. 504 182255 381476 510175 632647 738686
crore)
CashDepositRatio(Per
Cent) 8.2 8.4 6.4 6.7 7.2 9.7
PerCapita Depositof
SCBs(Rs) 88 9770 16281 19130 23382 28610
TheIndianbankingindustryhadmadesufficientprogressduringthereforms period.The
progressoftheindustrycanbejudgedintermsofgrowthofCreditand Deposits,Branch
January 27, 2013

7. 7 Banking sector performance after 1991 economic liberalization in India
expansion,Advancesto Priority Sector, etc.
Aggregate Deposits and Credit of Scheduled CommercialBanks
Above shows thatthedemanddeposits and time depositsofscheduledcommercial
banks(SCBs)hadincreased.Thegrowthoftimedepositsinabsolutetermshasbeen
morethandemanddeposits.Thehighgrowthoftimedepositsoverdemanddepositsis
mainlyduetohigherinterestratesbeingofferedbythebanksonsuchdepositsaswell as availability of
taxbenefitsto certaindepositschemes.
ThestudycarriedoutbyCRISILrevealedthatgrowthoftermdepositsisdueto the
sensitivitiesofinterestrate, whileother depositssuchasdemandandsavings depositsshow
nosensitivitiestointerestratemovement.Theinterestrateofferedby the scheduledcommercialbanks
(SCBs) on termdeposits on anaveragewas 6 to9 per cent
whichishavingamaturityperiodofthreetofiveyearslookingatthetrendofinterest
rateoflastfourtofiveyears.Asaresultofthis,there
isagrowthinaggregatedepositsofscheduledcommercialbanks.Alongwiththeincreaseinaggregatedep
ositsofSCBs,thecreditofthebanks hasalso increased. Thegrowthofcredithasbeenlargely
duetotherobustgrowthofindustrialsectorsandthegovernmentdecisiontoincrease creditto
theagriculturalsector whichled torapid increaseinbank
credit.ThepercapitadepositsofSCBsincreasedfromsimplyRs.88crorein1969to
Rs.9,770crorein2001andtoRs.28,610croreinMarch2008.Moreover,depositsof
SCBsaspercentageofGrossNationalProduct(GNP)atfactorcost(atcurrentprices) has
increasedfrom15.5 per centin June 1969 to74.7 per centas on March 2008.
PrioritySectorLending
TheflowofcredittoprioritysectorsincreasedtoRs.7,38,686croreinMarch
2008ascomparedtoRs.1,82255croreinMarch2001andJustRs.504croreinJune
1969.CreditflowtotheprioritysectorismainlytoAgriculture,Smallscaleindustries, Housingand
servicesector.Theshareofprioritysectoradvancestototalcredithas increasedto32.9percentason
March2008ascomparedto14.00percentinJune
1969.Theincreaseshowsmorethandoubletheincreaseinprioritysectoradvancesto
totaladvancesover40years.Butitremainssameduringthebeginningofpost-reform period totilldate.
Credit-DepositRatio
Thecredit-depositratio(CDratio)ofallscheduledcommercialbanksovera
periodoftimehasincreasedfrom53.5percentinMarch2001to74.6percentin
March2008.Theincreaseindemandforcommercialcreditandalsofoodandnon-food
credithasledtoanincreaseintotalcreditofscheduledcommercialbanks(SCBs)over the last few
decades and as a result of this, the credit-deposit ratio continued to increase.But
itstarteddecliningafter2007. Thecash-
depositratioduringtheperiodofnationalizationofbanksin1969was
8.2percentandthesamehasdeclinedto7.2percentasonMarch2007.Thedeclining trendofcash-
January 27, 2013

8. 8 Banking sector performance after 1991 economic liberalization in India
depositratiorevealsefficientmanagementofcashflowofSCBsduring
theperiodconcerned.Butduring2007-08,thecash-depositratioincreasedto9.7per centas
comparedto 7.2 per centduring theprevious year.
Thesizeofthebankassetsofaneconomyisameasureoffinancialmaturity.
ThesizeofthebankassetsinrelationtoGDPhasimportantimplicationsforfinancial
developmentofanyeconomy.InIndia,theratioofbankassetstoGDPofallscheduled
commercialbankswas53.4percentin1997-98anditincreasedto103.3percentin 2006-07.Outof this,
publicsectorbanks (PSBs) accountedfor nearly 80 per centassets
asapercentagetoGDP.Inthecaseofpublicsectorbanks(PSBs),theratioofbank
assetstoGDPincreasedfrom44.1percentin1997-98to79.6percentin2006-07.The
shareofprivatesectorbanksintheratioofbankassetstoGDProseto17.6percentin 2007frommerely
4.8 percent in1998.
Theimpactofreforms(Financialliberalization)ontheperformanceofIndian banking sector
was measured / analyzed on the basis of different indicators of
performance.Tomakeacomparativeanalysisofvariousindicatorsofperformanceof
differentbanksfrom1997-98to2007-08,thebanksweredividedintofivegroups,i.e.,
AllScheduledCommercialBanks,PublicSectorBanks, OldPrivateSectorBanks, New
GenerationPrivateSectorBanks, and Foreign Banks.
Tomeasuretheimpactofliberalization,privatizationandglobalizationonthe performanceof
Indianbankingsector,thefollowingindicatorswereused toanalyzethe impactof variousreforms:
ProfitabilityIndicators.
Productivity Indicators.
Assets Quality Indicators.
(DPrudentialnormslikeCRR,SLR,structureofInterestrates,priority,sector
lendingindicatory,competitionandinstitutionalfeaturesetc.
Technology DevelopmentIndicators.
PROFITABILITYINDICATORS
Profit is the very reason for the continued existence of every commercial organization.
Therateofprofitabilityandvolumeofprofits are,therefore, rightly consideredasindicatorsof
efficiencyinthedeploymentofresourcesofthebanks. Profitability
indicatesearningcapacityofthebanks. It highlightsthemanagerial
competencyofthebanks.Italsoportraysworkculture,operatingefficiencyandoverall performanceof
thebanks.
Various structural factors include geographical spread of bank branches, decentralization in
management and structural changes in deposits and advances.
Bankingstructureandprofitabilitystructureofbankingsystemsacrosscountrieshavea
bearingontheprofitabilityofbanks.Theprofitabilityofbanksisaffectedbyoneway
ortheotherbythesefactors.Afterliberalization,profitabilityhasregaineditslost
importance.Nowbanksarebeingdirectedtoachievetheprofitabilitytargets.Sinceall
thebanksinthecountryfunctionundersimilarenvironment,thelowperformanceof
anybankcanbeattributedtoalarge extenttotheirmanagerialinefficienciesand structuraldeficiency.
Theimpactofreformsontheprofitabilityofbankingsectorhasbeenstudiedon
January 27, 2013

9. 9 Banking sector performance after 1991 economic liberalization in India
thebasisofvariousvariablesofprofitabilitylikeincome,interestincome,non-interest income, gross
profit, net profit, spread, expenditure, interest expended, operating
expenses,costtoincomeaspercentageoftotalassetoffivebankgroupsfrom1997-98 to 2007-08.
YEARS Income InterestIn Non NetProfit/Loss Expenditure Costto
come InterestIncom Income
e
2000-01 11.77 9.27 2.47 0.93 10.84 60.25
2001-02 11.44 8.56 2.88 1.32 10.12 63.47
2002-03 10.35 7.68 2.64 1.56 8.78 53.03
2003-04 9.55 6.74 2.84 1.65 7.90 48.28
2004-05 8.49 5.94 2.52 1.29 7.19 45.29
2005-06 8.86 6.17 2.65 1.54 7.32 49.54
2006-07 9.90 6.53 2.57 1.67 7.43 51.09
These are as the % of total assets.
PRODUCTIVITYINDICATORS
Amongvariousproductivityindicators,employeeproductivityindicatorslike
businessperemployeeandprofitperemployeearemostcommonlyused.Inaddition,
businessperbranchand profitperbrancharealsousedtojudgethebranchlevel productivity.
SelectedProductivityIndicatorsofScheduledCommercialBanks(Rs.in
Lakh)
Year Business Per Profit Per Business Per
Employee Employee Branch
1996-97 66 0.4 1290
1997-98 75 0.5 1449
1998-99 84 0.3 1587
1999-00 97 0.5 1794
2000-01 115 0.5 1962
2001-02 137 0.9 2149
2002-03 150 1.2 2348
2003-04 163 1.5 2545
2004-05 173 1.3 2670
2005-06 217 1.5 3337
The business per employee of scheduled commercial banks increased over three-foldin
realtermsfromRs.66lakhin1996-97toRs.217lakhin2005-06,
exhibitinganannualcompoundgrowthrateofnearly10percent.Atthesametime,the
profitperemployeeincreasedmorethanfour-fold,fromRs.40000toRs.150000over the sameperiod
as shown in Table.BranchproductivityalsoshowedasimilartrendasisevidentfromTable4.14.
Businessperbranchincreasedmorethan2.5timesduringtheperiodofstudy.Overall,
thefiguressuggestdistinctiveproductivityimprovementsinthebankingsectoroverthe
January 27, 2013

10. 10 Banking sector performance after 1991 economic liberalization in India
reformperiod.Such improvements could be driven by these factors:
Technologicalimprovements,whichexpandtherangeofproductspossibilities,andacatchingup
effect,aspeerpressureamongstbankscompelsthemtoraisetheproductivitylevel.In
thecontextofgradualderegulationsoffinancialsector,severalfactorscouldhavebeen
atwork:asignificantshiftofthebest practicefrontier,drivenbyacombinationof
technologicaladvances,financialinnovationanddifferentstrategiespursuedbybanks
suitedtotheirbusinessphilosophyandrisk-returnprofile, changingcompositionof banksinput-
output,andreductionintotalcostduetoimprovementinoverallefficiency.
Whileitisdifficulttopinpointtherelativemix ofthesefactorsinraising productivity,
thebottomlineisclear.Indianbankswitnessedsignificantproductivity improvementsinpost-
reformsperiod.
ASSETSQUALITYINDICATORS
The measureofNon-Performing Assets(NPAs) explainstheefficiencyin
allocationofresourcesmadebythebankstoproductivesectors.TheproblemofNPAs
ariseseitherduetobadmanagementbybanksorduetochangeinbusinesscycle.The
sharpriseincreditgrowthcontinuedtobeaccompaniedbysignificantimprovementin
assetquality.Amongtheseveralchannelsofrecoveryavailabletothebanksdealing with Non-
Performing Loans (NPLs), the Debt Recovery Tribunal (DRT) and the SARFAESIActhavebeen
mosteffectivein termsof amountrecovered.
YEARS Gross NPAs Net NPAs
2000-01 4.90 2.50
2001-02 4.60 2.30
2002-03 4.00 1.90
2003-04 3.30 1.20
2004-05 2.52 0.92
2005-06 1.83 0.67
2006-07 1.46 0.58
These are as the % of total assets.
PRUDENTIAL NORMS
Sincethebeginningoffinancialsectorreforms,animportanttaskofthepolicy- makers was to
bring in an appropriate regulatory framework. The design of an appropriate regulatory
framework is to encourage competition and efficiency in
bankingservicesandatthesametimeensureasafeandsoundbankingsector. Itmay
beverydifficultandcomplexcomponentofbankingsectorliberalizationprocess.The Narasimham
Committee - I report provided guidance on the actual design of the regulatory mechanism. The
regulatory framework for banks known as ‘Prudential Regulation’intheliterature
consistsbroadlyofcapitaladequacynorms,restrictionson the
linesofactivitiesthatbankscanparticipatein,restrictiononentryanddeposit insurance.
Theprudentialregulatoryframeworkfor banks hasbeendesignedtoaddress the
January 27, 2013

11. 11 Banking sector performance after 1991 economic liberalization in India
following issues:
MarketStructure,
CapitalAdequacy Norms,
Accountingand Provision for NPAs,
Supervision of theBanks, and
Privatizationof Banks.
TECHNOLOGICAL INDICATORS
TechnologicalDevelopment in Banks
Technologicaldevelopmentandtheuseofinformationtechnology(IT)have
transformedthefunctioningofthebankingsectorinthecountry.BanksinIndiahave
usedITnotonlytoimprovetheirowninternalprocessesbutalsotoincreasefacilities
andservicestothecustomer.Furthermore, thelargescaleincreaseinthenumberof
transactionshandledbythebankshasenhancedthedependenceofbankingsectoron
moderntechnologiesincludingtheuseofcomputers.Apartfromreducingtransactions
cost,theuseoftechnologyhasalsoprovidednewavenuestobankstoexpandtheir
outreach,especiallyintheremoteandruralareas.Severalbankshavebeenpositioning
themselvesasaonestopshopfinancialserviceproviderwithafairlyexhaustiverange of products.
Following technological development is done after liberalization.
Computerizationin Banks
ComputerizationofBranches inPublicSectorBanks
Branches and ATMs ofBanks
RealTime Gross Settlement (RTGS) and Other ElectronicTransactions
AlthoughcashcontinuetobeusedheavilyinretailtransactionsinIndia,theuse
ofchequeandseveralotherpaymentinstrumentssuchaCreditcards,Debitcardsand
Smartcards,onthewhole,hasbeenincreasingintherecentyears.Theuseofpayment cards, both
involumeand valueterms,morethan doubledin 2004-
05.AsaresultofsharpincreaseinRTGSandotherelectronictransactions,the
proportionofelectronictransactionsbothinvolumeandvaluehasincreasedsharply.
Electronicpaymentsare cheaperascomparedtopaper-basedinstruments.Theycan
alsobecarriedoutfasterincomparisonwithpaper-basedtransactions.Theincreaseduseof
electronicpaymentshas, thus, increasedtheefficiencyof the
paymentsystem.TheRTGSwasoperationalizedonMarch26,2004.Itsusagefortransferof funds
especially for largevalues andfor systematically importantpurposehas increased
sincethen.ThelargevaluepaymentsystemsincludetheRealTimesGrossSettlement (RTGS),
governmentsecuritiesclearingandFOREXclearing.TheRTGSsystemhas
beeninoperationformorethanfouryearsinceitsoperationalization.
RetailElectronicPayment Methods
Theuseofelectronicpayments,bothretailandcard-based,increasedinrecent
years,reflectingtheincreasedadoptionoftechnology.Theelectronicpaymentsystems
suchaselectronic clearingservice(ECS)-bothdebitandcredit,nationalelectronic
January 27, 2013

12. 12 Banking sector performance after 1991 economic liberalization in India
fundstransfersystem(NEFT)andcardbasedpayment(creditanddebit)arebecoming
increasinglypopularasindicatedbytheincreaseintransactionthroughretailelectronic
paymentmethods.BoththevariantsofECS,i.e.,ECS(credit)andECSdebitfordirect
creditsuchassalaryandpensionpayments;andtheotherfordirectdebits,suchas
collectionofbills,insurancepremiumandequatedmonthlyinstallment(EMI)payments
ofloansarebeingincreasinglypreferred.
REFERENCES:
RBI,StatisticalTablesrelatingtoBanks in India, Various issues (1997-98 to 2007-08).
ReportonTrendandProgressofBankinginIndia,variousissues(1997-98to2007-
08).
ReserveBank ofIndia, IBA Bulletin(Variousissues)
Reserve Bank ofIndia, RBIBulletin(Variousissues)
ReserveBankofIndia–ReportoftheCommitteeFinancialSystem(Narasimham
Committee),1991.
January 27, 2013