Tuesday, October 8, 2013

New Gen Banks and their performance

The new era of economic and financial sector reforms in India has seen introduction of prudential norms for the banking system in March 1993.  Definition of NPAs was introduced then besides, CAR and later Asset Liability Management!  Later, NPA definition was changed 3 more times to bring down to 3 months or 90 days dues as the norm on par with global standards.  Almost all the banks took some time to re-adjust to all the developments and re-tune to Basel I and II standards.  Technology intervention and trend towards more of retail banking also put the banking system under severe stress with deregulation of interest rates.  One silver lining in the reforms was that SLR and CRR rates were brought down from the peak levels of about 39 and 15 percent, thus enabling the banking system to carry out competitive business to earn profits and become productive, simultaneous with increasing their reach and competing with new generation banks.

In all, 11 new banks were allowed on different dates the last such step being licencing of YES Bank and Kotak Mahindra Bank in 2002-03.  The one interesting fact is that even among the new banks, four were forced to merge with other banks within a very short time of their functioning.  These are Bank of Punjab, Centurion Bank, Global Trust Bank and Times Bank.  One needs to focus on their working separately to study and conclude the effectiveness of new private banks in the Indian Financial System.  

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