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- By Shyamala Gopinath
Recently, the emerging post-crisis regulatory landscape for the financial sector viz Basel III framework for banks, OTC derivative markets etc. has come under a sharp focus.
There has been quite some progress internationally in repairing the financial system – strengthening the regulation of institutions – banks/non-banks – and markets as well as the support framework. But increasingly, the central role of banks in the entire network, enmeshed through the financial system, is coming out much sharper.
Even in market-based financial systems, which were supposed to contribute to disintermediation of the role of banks in a big way, the vital support functions being performed by banks came out clearly during the crisis. The recent crisis was, as much as other things, about the centrality of banks as the supporting lifelines of financial markets. There is a clear recognition of the inadequacies of the regulatory approach based on the assumption of self-contained, well functioning markets which ignored the risks these markets passed on to the banking system.
There is a rich literature on comparative benefits of bank-based versus market-based financial systems. The bank-based view highlights the positive role of banks in leveraging informational advantage about the firms for capital allocation and ensuring better credit discipline. In contrast, the market-based view highlights the growth enhancing role of well-functioning markets in fostering greater innovation; enhancing greater market discipline and corporate governance. Market-based systems were supposed to reduce the problem of moral hazard inherent in bank-based systems.
However, it is increasingly being recognised that any system is essentially an interplay of dynamic interaction between banks and markets and right interpretation of this interplay would be critical for addressing systemic stability.
Banks have become intricately linked to financial markets, and hence, more susceptible to strains in financial markets; at the same time, functioning of markets has become intricately linked to banks which then emerge as the receptacle for most of risks within the financial markets.
Talent acquisition has remained a matter of concern for public sector banks(PSBs). Recruitment and selection processes play decisive roles in aligning the human capital requirement in view of sea changes in internal processes of banks and the increasing competition levels with the entry of new market players.
The conspicuous changes in the demographic profile and segmentation of customers in addition to the increasing expectation levels of services have laid pressure on the banks to enhance human capital skills, particularly at the entry level positions; therefore, there is need to strengthen the present selection processes in view of changes, both internal and external to the banks.
In order to synchronise the new skill requirements and the present selection process, few banks have proactively introduced some relevant changes, however it appears that similar revisions have not been followed by other PSBs.
This article attempts to highlight the emerging gaps in present selection processes in identifying the appropriate talent in concordance with the skills required in changing job profile of the employees at PSBs.
The economic reforms in 1990s marked decisive changing pattern in the character and structure of Indian banking sector on the ground of innovation, growth and value creation (McKinsey, 2005). There has been a spectacular growth in the spatial distribution, size of deposits and advances in banks.
Banks are transforming to become people oriented and customer focused to bring perceptible changes in their business strategies. Initiatives such as technology adaptation, customisation of products, high quality services have made the business processes barrier free reaching to far-flung rural areas. In midst of these positive changes, the reforms also allowed entry of other players in the market, resulting in aggressive competition and forces of globalisation acting strongly.
The process of transformation has impacted PSBs significantly. With devolution of autonomy of PSBs and to meet with ever growing competition indigenously and globally, an urgent need to revamp the conventional approaches at various fronts is realised to compete with counterparts. Hence, to respond to the changes, banks are adopting advance technology, promoting partial private shareholding, strengthening of institutional skill levels by altering the HR strategies and strengthening the infrastructure to reach the remote parts of country.
Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company.
For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India.
Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla.
When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century.
Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Puducherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.
The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.
The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments."
The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking".
During the First World War (1914-1918 ) through the end of the Second World War (1939-1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918.
The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance.
The major steps to regulate banking included:
The Reserve Bank of India, India's central banking authority, was nationalized on January 1, 1949 under the terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in]
In 1949, the Banking Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India."
The Banking Regulation Act also provided that no new bank or branch of an existing bank could be opened without a license from the RBI, and no two banks could have common directors.
Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm.
Thereafter, her move was swift and sudden. The Government of India issued an ordinance and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969.
A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19.
After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.
In the early 1990s, the then Narsimha Rao government embarked on a policy of liberalization, licensing a small number of private banks. These came to be known as New Generation tech-savvy banks, and included Global Trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, Axis Bank(earlier as UTI Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalized the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.
The next stage for the Indian banking has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 74% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks.All this led to the retail boom in India.
People not just demanded more from their banks but also received more.
Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.
With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.
In recent years critics have charged that the non-government owned banks are too aggressive in their loan recovery efforts in connection with housing, vehicle and personal loans. There are press reports that the banks' loan recovery efforts have driven defaulting borrowers to suicide
1. Allahabad Bank
2. Andhra Bank
3. Bank of Baroda
4. Bank of India
5. Bank of Maharashtra
6. Canara Bank
7. Central Bank of India
8. Corporation Bank
9. Dena Bank
10. IDBI Bank
11. Indian Bank
12. Indian Overseas Bank
13. Oriental Bank of Commerce
14. Punjab National Bank
15. Punjab & Sind Bank
16. Syndicate Bank
17. Union Bank of India
18. UCO Bank
19. United Bank of India
20. Vijaya Bank
21. SBI-State Bank Of India
SBI & associates (Nationalized)
State Bank of India
22. State Bank of Bikaner & Jaipur
23. State Bank of Hyderabad
24. State Bank of Mysore
25. State Bank of Patiala
26. State Bank of Travancore
State Bank of Indore - (merged with SBI in 2010)
State Bank of Saurashtra - (merged with SBI in 2008 )
Axis Bank (Formerly UTI Bank)
Kotak Mahindra Bank
The Nainital Bank Ltd.
ING Vysya Bank
South Indian Bank
Scheduled Urban Co-operative Banks
List of Scheduled Urban Co-operative Bank as on 31-3-2009 as per RBI
Sapthagiri Coop. Bank Chittoor AP India
Bank Main Location
Rani Laxmibai urban Co-op Bank, Jhansi
Ahmedabad Mercantile Co-Op Bank Ltd. Ahmedabad
Kalupur Commercial Coop.Bank Ltd. Kalupur
Madhavpura Mercantile Co-Op Bank Ltd. Madhavpur
Mehsana Urban Co-Op Bank Ltd. Mehsana
Nutan Nagarik Sahakari Bank Ltd. Ahmedabad
Rajkot Nagarik Sahakari Bank Ltd. Rajkot
Almora urban co-operative bank ltd. almora
South Indian Bank Tirichur
Sardar Bhiladwala Pardi Peoples Coop Bank Ltd. Bulsar
Surat Peoples Coop Bank Ltd. Surat
Amanath Co-operative Bank Ltd. Bangalore
Andhra Pradesh Mahesh Co-Op Urban Bank Ltd. Andhra Pradesh
Charminar Coop.Urban Bank Ltd. Hyderabad
Vasavi Coop Urban Bank LImited. Hyderabad
Indian Mercantile Co-op Bank Ltd. Lucknow
Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. Ichalkaranji
Abhyudaya Co-operative Bank Ltd. Mumbai
Bangalore city cooperative bank. Bengaluru
Bassein Catholic Co-operative Bank Limited. Vasai
Bharat Co-operative Bank (Mumbai) Ltd. Mumbai
Bharati Sahakari Bank Limited. Pune
Bombay Mercantile Co-operative Bank Limited. Mumbai
Citizen Credit Co-operative Bank Ltd. Dadar
Cosmos Co-operative Urban Bank Ltd. Pune
Dombivli Nagari Sahakari Bank Ltd. Dombivli
Goa Urban Co-operative Bank Limited. Goa
Greater Bombay Co-operative Bank Limited. Mumbai
Jalgaon Janata Sahakari Bank Ltd. Jalgaon
Janakalyan Sahakari Bank Ltd. Mumbai
Janalaxmi Co-operative Bank Ltd. Mumbai
Janata Sahakari Bank Ltd. Pune
The Karnataka State Co-Operative Apex Bank Ltd Bengaluru
Kalyan Janata Sahakari Bank Ltd. Kalyan
Karad Urban Co-operative Bank Ltd. Karad
Mahanagar Co-operative Bank Ltd. Mumbai
Mapusa Urban Co-operative Bank of Goa Ltd. Mapusa
Nagar Urban Co-operative Bank Ltd. Ahmednagar
Nasik Merchant's Co-operative Bank Ltd. Nasik
New India Co-operative Bank Ltd. Mumbai
NKGSB Co-operative Bank Ltd. Mumbai
Parsik Janata Sahakari Bank Ltd. Thane
Pravara Sahakari Bank Ltd. Ahmednagar
Punjab & Maharashtra Co-operative Bank Ltd. Mumbai
Rupee Co-operative Bank Ltd. Pune
Sangli Urban Co-operative Bank Ltd. Sangli
Saraswat Co-operative Bank Ltd. Mumbai
Shamrao Vithal Co-operative Bank Ltd. Mumbai
Solapur Janata Sahakari Bank Ltd. Solapur
Thane Bharat Sahakari Bank Ltd. Thane
Thane Janata Sahakari Bank Ltd. Thane
The Kapol Co-operative Bank Ltd. Mumbai
Zoroastrian Co-operative Bank Ltd. Mumbai
Nagpur Nagrik Sahakari Bank Ltd. Nagpur
Shikshak Sahakari Bank Ltd. Nagpur
The Akola Janata Com.Co-operative Bank Ltd. Akola
The Akola Urban Co-operative Bank Ltd. Akola
The Khamgaon Urban Co-operative Bank Ltd. Khamgaon
Cuttack Gramya Bank. Cuttack
Non-Scheduled Urban Co-operative Banks
List of Non-Scheduled Urban Co-operative Bank as on 31-3-2010 as per RBI
Bank Main Location
Janaseva Sahakari Bank Ltd., Pune
Vishweshwar Sahakari Bank Ltd., Pune
Sadhna Sahakari Bank Ltd., Pune
Sanmitra Sahakari Bank Ltd., Pune
List of subsidiaries of Indian Banks abroad
SBI (Canada) Ltd. Toronto Vancouver,Mississauga
SBI (California) Ltd. Los Angeles, Artesia,San Jose (Silicon Valley)
SBI Finance Inc. Delaware U.S.A.
SBI International (Mauritius) (Off-shore Bank)Mauritius
Bank of Baroda Uganda) Ltd. Uganda
Bank of Baroda(Kenya) Ltd. Kenya
Bank of Baroda (U.K.) Nominee Ltd. London, UK
BOB (Hong Kong)Ltd. (Converted into Restricted Licensed Bank) Hongkong
Bank of India Finance(Kenya) Ltd. Kenya
IOB Properties Pte Ltd. Singapore
Bank of Baroda(Botswana) Ltd. Gaborone Botswana
Bank of Baroda(Guyana)Inc. Georgetown Guyana (South America)
ICICI Bank UK Ltd London (UK)
ICICI Bank Canada Ltd Toronto (Canada)
Bank of Baroda (Tanzania) Tanzania
Bank of Baroda (Dubai, Abu Dhabi, Ras Al Khaimah, Deira,Dammam, Salalah, Al Ain) United Arab Emirates
Bank of Baroda Sultanate of Oman, Muscat,
Bank of Baroda Belgium, Brussels
ICICI Bank Eurasia LLC Russia
PT Bank Indomonex Indonesia
Indian Ocean International Bank Ltd. (IOIB) Mauritius, Port Louis
Punjab National Bank International Limited (PNBIL) United Kingdom, London
Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago
PT Bank Swadesi Tbk Indonesia
Bank of Baroda (Trinidad and Tobago) Limited Trinidad & Tobago
ABN AMRO Bank N.V. - Royal Bank of Scotland
Abu Dhabi Commercial Bank Ltd
American Express Bank
Antwerp Diamond Bank
Arab Bangladesh Bank
Bank International Indonesia
Bank of America
Bank of Bahrain & Kuwait
Bank of Ceylon
Bank of Nova Scotia
Bank of Tokyo Mitsubishi UFJ
ChinaTrust Commercial Bank
HSBC (Hongkong & Shanghai Banking Corporation)
JPMorgan Chase Bank
Krung Thai Bank
Mizuho Corporate Bank
Oman International Bank
Standard Chartered Bank
State Bank of Mauritius
Foreign Banks with Representative Offices in India
American Banks - mayur coprative bank limited