EVOLUTION OF BANKING IN INDIA: A THEORETICAL FRAMEWORK

Abstract

The year 1991 unleashed the potential of the Indian economy through major policy changes popularly known as, Liberalization, Privatization and Globalization (LPG model). A series of reforms were undertaken to make India globally competitive and efficient, targeting the industrial, trade and financial sectors, shaking off the isolation, inward looking restrictive governance and a hitherto conservative attitude that had been embraced since independence in 1947. The financial sector reforms set in motion in 1991 and 1998 (Narsimhan Committee I – 1991; Narsimhan Committee II - 1998) had far reaching results for the Indian banking sector, which moved gradually from a strictly regulated environment to a deregulated, dynamic market economy. While the market reforms brought in powerful, demanding and discerning customers on one hand, they also introduced a new mix of competing players comprising public sector banks, private banks and foreign banks. These changes were further fuelled by technological developments acting as catalytic forces for introducing new products, adopting innovative delivery mechanisms and in general re-writing the rules of working. The Indian banking system proved resilient and a quick learner, adapting to the new environment and coping with challenges ranging from WTO and Basel II to FTA and sub-prime crises. Of special import were the organisational challenges, requiring banks to re-orient their resources to capitalize on the opportunities being presented before them. Tapping these meant re-organising branch networks, reducing establishment cost, attracting and retaining talented staff pool as well as honing their skills to perfection. The Indian banking sector, thus, poised at an exciting point in it’s evolution shall crown those players as winners who can gauge customer expectations, achieve high level of customer retention, leverage technology and manpower, thereby delivering value to all stakeholders.