Banking - Yojana

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PERSPECTIVE
Banking Secto~ ReforDl in India:
A Study
Anindya Bhukta
The process of strengthening the banking system has to be
viewed as a continuing one. There is no finite end to
improving the levels of efficiency and profitability. Infact,
the situation is one where the system has to cope constantly
with changes in the broader environment in which it
functions and face new challenges that these developments
, impose on it.
FAILURE OF banks was a
regular feature in the preindependence
period and,
though to lesser extent, even in the
post-independence period. The
. banking industry then was mostly
in the h'ands of private
entrepreneurs. As a result
whenever a bank failed its
customers were simply cheated and
their hardearned money was
forfeited. So, nationalisation of
banks was a long-run demand. The
demand finally was satisfied when,
in 1969, though unfortunately
owing to a political compulsion,
the 'government nationalised
fourteen commercial banks.
-rhereafter, in 1980 again, six more
banks were nationalised.
In 1969, the slogan was
introduction of mass-banking. In
fact, prior to this period, private
ban'ks mostly operated in the
urban and semi-urban .areas.
Banking facilities were out of reach
of a large number of rural people.
This, in turn, hampered our
savings habits ahd hence
investment. So spread of bank
branches to remote rural areas was
also another need of the hour.
After nationalisation, the
government decided to extend
banking facilities to rural areas.
The 1969-reform of banking
sector got tremendous success in
the sense that there was a
phenomenal growth in the
number of bank branches to reach
every nook and corner of the
country. However, in other senses,
it was a total failure. A review of the
performance of Indian banking
sector in early 90's revealed that
despite the overall progress made
by the banking system in
geographical and functional
coverage, its operational efficiency
had been unsatisfactory,
characterised by low profitability,
high and growing non-performing
assets and relatively low capital base
(Rangarajan, 1999).
Against this background a
programme of reform in the
Indian financial sector was taken
up since 1991. The financial sector
reform is a part of the structural
adjustment programme, initiated
in 1991, basic philosophy of which
is to build a market-led
economy. The financial sector
reform was started in 1991 on the
basis of Narasimham Committee
Report. The committee, headed by
Mr M. Narasimham, submitted its
report in Novem.ber 1991. Though
the report covered the financial
system ofIndia as a whole, its main
thrust was on the banking sector.
The banking sector accounts for 80
percent of the funds flowing
through the financial sector and
hence reform of the banking
,s,ector is considered urgentto build
up a strong and efficient financial
system, which, ir turn, is critical to
the attainment of the goals of
creating a market-driven,
productive and competitive
economy, supporting higher
investment levels and acceri tuating
growth. (Padmanbhan, 1998).
Mr Anindya Bhukta is a Lecturer in Economics, Netaji Mahavidyalaya, Arambagh, Booghly, W. Bengal.
YOJANAJuly 2002 5
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