Indian Banking Sector Analysis (2006-2007)

                                                                                         

With second highest growth rate of economy, India is gaining prominence in the world market. However, a robust banking industry is essential to uphold the enhanced levels of activities, both in domestic as well as global market. Despite undergoing dramatic changes during the past decade, the existing risk management system of Indian banking sector is still in its nascent stage and needs to be augmented.

The government of India during the past few months announced a series of banking reforms. These reforms were designed to give greater autonomy to state-controlled banks & provide guidelines for the expansion of foreign banks.

Many of the analysts were disappointed, as the measures did not materially change as to how foreign banks can operate. Significant restrictions on foreign banks are still there and RBI (Reserve Bank of India) retains wide discretionary power over both the timing as well as implementation of reforms.

Indian banking system is still dominated by government banks, as public sector banks make up for three-quarters of the total assets of commercial banking in the country. However the banking system in India is fragmented and none of the banks, except SBI (State Bank of India), holds above 10% of the total assets.

To sum up, Indian banking sector has come across a drastic improvement during the recent years. Booming economy & low interest rate environment have enabled the banks to increase their earnings via expanding lending, widening the interest margins and so on.

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