Scribd
Upload
460 views9 pages

Project Report: Banking Reforms

This project report summarizes banking reforms in India from 1992 to 2008. It discusses general banking reforms such as reducing government equity in banks, allowing new private banks, and introducing universal banking. Specific reforms are outlined for 2005-06, 2006-07, and 2007-08, which focused on increasing agricultural lending, reforming priority sector norms, and providing tax benefits for long-term deposits. The reforms aimed to make banks more efficient, profitable, and able to support growth in India.

Uploaded by

S.S.Rules
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
460 views9 pages

Project Report: Banking Reforms

This project report summarizes banking reforms in India from 1992 to 2008. It discusses general banking reforms such as reducing government equity in banks, allowing new private banks, and introducing universal banking. Specific reforms are outlined for 2005-06, 2006-07, and 2007-08, which focused on increasing agricultural lending, reforming priority sector norms, and providing tax benefits for long-term deposits. The reforms aimed to make banks more efficient, profitable, and able to support growth in India.

Uploaded by

S.S.Rules
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 9

Project Report

On

Banking Reforms

Sumeet Singh
MBA (Gen)
Roll. No.= 89
Sec = B
Contents

Sr.No. Subject Covered Page No.

1 Introduction 3

2 General Banking Reforms 4-5

3 Main Banking Reforms in 2005-06 6

4 Main Banking Reforms in 2006-07 7

5 Main Banking Reforms in 2007-08 8-9

2
1. Introduction:

The Banking Sector Reforms in India were initiated in 1992. The objectives of reforms
were to strengthen the Indian banks, make them internationally competitive and
encourage them to play an effective role in accelerating the process of growth. The
reforms process also initiated measures for improving the productivity, efficiency and
profitability of the banking system. It was also recognized that the Indian banking
system should be placed on par with international standards in respect of capital
adequacy and other prudential norms. The operational rigidities in credit delivery
system were to be removed to ensure allocation efficiency and achievement of social
objectives.

Banking reforms in the last decade had virtually given up their focus on development
and social priorities, a former finance secretary said. “The reforms undertaken in
banking sector in the last 10-12 years have virtually given up the role of
industrialization and development in the country,” former finance and commerce
secretary SP Shukla said, releasing the interim report on ‘alternative policy on banking.’

Shukla, the chairman of an independent commission on banking and financial policies,


under the aegis of All India Bank Officers Confederation, said the reforms were a
“retreat” from the basic policies

3
2. General Banking Reforms:

1. Government equity in banks has been reduced and strong banks have been

allowed to access the capital market raising additional capital.

2. Bank now enjoying the operational freedom in terms of opening of new branches

and bank having good track record of profitability given flexibility in recruitment.

3. New private sector banks have been set up and foreign banks are allowed to

expend their function in India including through subsideries.

4. Banks are also allowed to set up off shore banking units in SEZ.

5. New instrument have been introduced for better flexibility and better risk

management like interest rate exchange, cross currency forward contract.

6. New areas open like-:

 Insurance

 Credit card

 Infrastructure financing

 Gold banking

 Investment banking

7. Several new institution have been set up-:

4
 National securities depositor limited

 Central depositors service limited

 Credit information bureau India limited

8. Limits for overseas investment have been liberalized.

9. The overseas investment for corporate have been raised to hundred percent

10. Universal banking has been introduced.

11. Adoption of global standard

12. Prudential norms for capital adequacy, Assets classification , income

reorganization, best accounting system, settlement system are adopted

13. Freedom in operation

14. Disinvestment of public ownership in public sector bank

15. Transparent norms for private and foreign bank

16. Permission for FDI and portfolio investment in banking

5
3. Main Banking Reforms in 2005–06 :

 Autonomy to RBI to implement reforms in banking sector.


 Amendment of the Banking Regulation Act.
 Allow banking companies to issue preference shares to boost their Tier-I
capital.
 Introduce provisions to enable the consolidated supervision of banks and their
subsidiaries by RBI.
 Increase bank lending to agricultural sector by 30% and PSU banks to
increase number of agricultural borrowers by 5 m.
 Remove the lower and upper bounds to the statutory liquidity ratio and
removal of the limits on the cash reserve ratio to provide flexibility to RBI to
prescribe prudential norms
 0.1% banking transaction tax to be imposed on cash withdrawals above Rs
10,000 on a single day.
 Enable RBI to lend or borrow securities by way of repo, reverse repo or
otherwise.
 Removal of benefits available to depositors (Section 80-L)
 The statutory pre-emptions in the form of SLR and CRR have been brought
down in a phased manner to 25% and 4.5% respectively.
 In order to strengthen the financial position of banks, minimum Capital to
Risk Weighted Assets Ratio (CRAR) was prescribed at 8%, which was further
increased to 9% from the year ending March 31, 2000.

6
4. Main Banking reforms in 2006–07 :

 Banks to increase disbursements to farmers to Rs 1,750 bn by FY07 (with


addition of 5 m farmers) and open a separate window for self-help groups
(SHGs). Additional 0.4 m SHGs to be credit-linked by FY07 in association
with NABARD.
 Farmers to be extended short-term credit at interest rate of 7% p.a. with an
upper limit of Rs 0.3 m on the principal amount.
 Net capital support to banking sector (by way of issuance of special non-
tradable government securities), standing at Rs 228 bn at the end of 9mFY06,
to be restructured by their conversion to tradable SLRs.
 Fixed deposits with tenures of not less than 5 years to be included under
Section 80 C for tax exemptions.
 Loans to food processing sector to be included in the priority-sector lending
basket.
 ATM operations and collection services provided by banks in public issues to
be brought under the service tax net.
 Banking Cash Transaction Tax (BCTT) to continue for some more time until

the AIR system is able to capture all significant financial transactions.

7
5. Main Banking Reforms in 2007–08 :

 Farm credit target for FY08 set at Rs 2,250 bn with an addition of 5 m new
farmers to the banking system and provision of Rs 17 bn for 2% interest
subvention for short-term crop loans
 To augment resources for refinancing rural credit cooperatives, NABARD to
issue Government guaranteed rural bonds to the extent of Rs 50 bn
 SARFAESI Act to be extended to loans advanced by Regional Rural Banks
(RRBs). RRBs to be permitted to accept NRE/FCNR deposits and those that
have a negative net worth to be recapitalised
 Cooperative banks to be allowed deduction in respect of provision for bad and
doubtful debts under section 36(1)(viia). Also, amalgamation and de-merger
of banking companies is tax neutral. This benefit to be extended to cooperative
banks
 Cash withdrawals by Central and State Governments to be excluded from the
scope of Banking Cash Transactions Tax (BCTT). Exemption limit for
individuals and HUFs to be raised from Rs 25,000 to Rs 50,000
 The government has proposed to acquire RBI's equity holding in State Bank
of India (59% currently). It has provided a sum of Rs.400 bn for this purpose,
but the transaction will be deficit neutral to the government. Also, the fund of
Rs 7.5 bn created for awarding 0.1 m (of Rs 6,000 each per year) will be
placed with the SBI, and the yield from the fund will be used for awarding the
scholarships.

8
 Increase in dividend distribution tax from 12.5% to 15%.
 1% higher education cess to charged.

 No interest on CRR: The staggered three-staged rise in the CRR from

6% to 7.5% bore a telling impact on the banking sector's liquidity


scenario. Besides together locking in liquidity to the tune of
approximately Rs 25 bn from being deployed in productive revenue-
generating resources (advances and investments), the removal of
interest payable by the RBI on CRR maintained by banks above 3.5% of
net demand and time liabilities, made it completely non-remunerative
for the latter.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy