The Banking Sector in Indias Economic system - Free Essay Example

Sample details Pages: 8 Words: 2512 Downloads: 10 Date added: 2017/06/26 Category Economics Essay Type Analytical essay Did you like this example? The banking sector are said to be the cornerstone of the economic system of any economy. The banking sector is said to be the change leaders when it comes to the financial system of any country. The banks are not only a facilitator but also the change leader. Don’t waste time! Our writers will create an original "The Banking Sector in Indias Economic system" essay for you Create order The banks are said to be the financial engineers as they device the best policies in order to facilitate the investment-savings mechanism. When talked about the banking sector of our country, we can say that it has evolved over decades. From being a closed and bureaucratic structure to now a redefined change led mechanism, the banking sector has changed a lot. The banking sector has been reformed from time to time in order to acquaint itself better to the changing needs and requirements of the economy. The banking sector in India is said to be among one of the most stable one. This point has been proved by the policies which were adopted during the economic recession which shook the world. The banking sector has been adopting the policies so as to safeguard not only the interest of the people who put in their deposits but for the economy as a whole. The banking sector has been in a stage of learning and development and continues to be in that stage so as to walk with time. T he scenario of the Indian banking sector has changed a lot from what it was 50 years ago. The country is now having not only more banks but also the banks are providing the services which were said to be out of purview of their scope of actions. From being policy oriented to being customer oriented, the Indian banking sector has revamped the whole economic structure. From the performance point of view we can clearly see that there has been an up trend. The banks from being a marginally profitable units, it has evolved to being a not only profitable corporation but also matching the international standards of banking. The performance of banking sector has improved 360 degree. The banks have not only improved in the balance sheet but has also improved in operations. There are many things that can be taken as the reason for such an improvement in the banking sector. It could be because of the healthy competition that has developed among the banks, or it could be because of better policies which have been adopted by the banks in order to manage their assets and deposits. It could because of the reforms that has been brought which facilitated the operations of the banks. Our research would be aimed at analyzing the performance of the banking sector over a period of 2001-2009 and try to find out as to how it has improved or detoriated over the years. The analysis would be done in the light of some reforms that have been brought in over the years. The research would take into consideration few of the reforms over the year and it would be seen as to whether they had an impact over the performance of the banks or not. In our research we shall take into consideration 12 banks, in which 6 banks will be Public Nationalised banks and the other 6 would be Private Sector banks. The reason for such a sample is that even though both types of banks belong to the same population of banks but their basic fundamentals are different from each other. We shall analyse the performance of the banking sector on 3 parameters in the light of the reforms taken over the years. The reforms that are been taken into consideration will be introduced in the following paragraphs with an effort to explain their implications in brief. The reforms are as follows:- REFORMS: The reforms would be studied under various heads. The introduction to reforms are as follows:- General Reforms:- The general banking reforms are as follows: 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 expand their function in India including through subsidiaries. 4. Banks are also allowed to set up off shore banking units in SEZ. 5. N ew instrument have been introduced for better flexibility and better risk management like interest rate exchange, cross currency forward contract. 6. New areas open like- : Æ’Ëœ Insurance Æ’Ëœ Credit card Æ’Ëœ Infrastructure financing Æ’Ëœ Gold banking Æ’Ëœ Investment banking 7. Several new institution have been set up- : Æ’Ëœ National securities depositor limited Æ’Ëœ Central depositors service limited Æ’Ëœ 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 ado pted 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 Reforms of 1992: The reforms that were brought in the year 1992 can be seen in brief as follows:- (a) Measures for liberalization, like dismantling the complex system of interest rate controls, eliminating prior approval of the Reserve Bank of India for large loans, and reducing the statutory requirements to invest in government securities. (b) Measures designed to increase financial soundness, like introducing capital adequacy requirements and other prudential norms for banks and strengthening banking supervision; (c) Measures for increasing competition like more liberal licensing of private banks and freer expansion by foreign banks. The better explaination of all the reforms done in the era of 1990s would be seen properly with the help of the recommendat ions of the Narshimahan committee. Reforms of 2005-2006: The reforms in the year 2005-206 can be enlisted as follows:- Æ’Ëœ Autonomy to RBI to implement reforms in banking sector. Æ’Ëœ Amendment of the Banking Regulation Act. Æ’Ëœ Allow banking companies to issue preference shares to boost their Tier-I capital. Æ’Ëœ Introduce provisions to enable the consolidated supervision of banks and their subsidiaries by RBI. Æ’Ëœ Increase bank lending to agricultural sector by 30% and PSU banks to increase number of agricultural borrowers by 5 m. Æ’Ëœ 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 Æ’Ëœ 0.1% banking transaction tax to be imposed on cash withdrawals above Rs 10,000 on a single day. Æ⠀™Ã‹Å“ Enable RBI to lend or borrow securities by way of repo, reverse repo or otherwise. Æ’Ëœ Removal of benefits available to depositors (Section 80-L) Æ’Ëœ 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. Æ’Ëœ 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. Reforms of 2006-2007: The reforms of the period of 2006-2007 are as follows:- Æ’Ëœ 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. Æ’Ëœ 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. Æ’Ëœ Net capital support to banking sector (by way of issuance of special nontradable government securities), standing at Rs 228 bn at the end of 9mFY06, to be restructured by their conversion to tradable SLRs. Æ’Ëœ Fixed deposits with tenures of not less than 5 years to be included under Section 80 C for tax exemptions. Æ’Ëœ Loans to food processing sector to be included in the priority-sector lending basket. Æ’Ëœ ATM operations and collection services provided by banks in public issues to be brought under the service tax net. Æ’Ëœ Banking Cash Transaction Tax (BCTT) to continue for some more time until the AIR system is able to capture all significant financial transactions. Reforms of 2007-2008: The reforms of 2007-2008 are as follows:- Æ’Ëœ 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. Æ’Ëœ To augment resources for refinancing rural credit cooperatives, NABARD to issue Government guaranteed rural bonds to the extent of Rs 50 bn Æ’Ëœ 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 recapitalized. Æ’Ëœ 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 Æ’Ëœ 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 rai sed from Rs 25,000 to Rs 50,000 Æ’Ëœ The government has proposed to acquire RBIs 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. Æ’Ëœ Increase in dividend distribution tax from 12.5% to 15%. Æ’Ëœ 1% higher education cess to charged. Æ’Ëœ No interest on CRR: The staggered three-staged rise in the CRR from 6% to 7.5% bore a telling impact on the banking sectors 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 mai ntained by banks above 3.5% of net demand and time liabilities, made it completely non-remunerative for the latter. Recommendations of Narshimham Committee I: The recommendations of the Narshimham Committee I are as follows:- (1) Establishment of a four-tier hierarchy for the banking structure consisting of three to four large banks with SBI at the top. (2) The private sector banks should be treated equally with the public sector banks and govt. should contemplate to nationalize any such banks. (3) The ban on setting new banks in private sector should be lifted and the licensing policy in the branch expansion must be abolished. (4) The govt. has to be more liberal in the expansion of foreign bank branches and also foreign operations of Indian banks should be rationalized. (5) The Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR) should be progressively brought down from 1991-92. (6) The directed credit program should be re-examined and the priority sector should be redefined to comprise small and marginal farmers, the tiny industrial sector, small business operators and weaker sections. (7) Banking industry should follow BIS/Basel norms for capital adequacy within three years. (8) Interest rates should be deregulated to suit the market conditions. (9) The govt. should tighten the prudential norms for the commercial banks. (10) The competition in lending between DFIs and banks should be increased and a shift from consortium lending to syndicated lending should be made. (11) In respect of doubtful debts, provisions should be created to the extent of 100 percent of the security shortfall. (12) The govt. share of public sector banks should be disinvested to a certain percentage like in case of any other PSU. (13) Each public sector banks should set up at least one rural banking subsidiary and they should be treated at par with RRBs. Recommendations of the Narshimham Committee II: The recommendations of Narshimham Committee II are as follows:- (1) The committee favored the merger of strong public sector banks and closure of some weaker banks if their rehabilitation was not possible. (2) It recommended corrective measures like recapitalization is undertaken for weak banks and if required such banks should be closed down. (3) The committee had also suggested an amicable golden handshake scheme for surplus banking sector staff. (4) Suggesting a possible short term solution to weak banks, the report observed that the narrow banks could be allowed as a mean of facilitating their rehabilitation. (5) Expressing concern over rising non-performing assets, the committee provided the idea of setting up an asset reconstruction fund to tackle the problem of huge non performing assets (NPAs) of banks under public sector. (6) The report emphasized the need of enhancement of capital adequacy norms from the present level of 8 percent but did not specify the amount to which it shou ld be raised. (7) The Banking Sector Reform Committee further suggested that existence of a healthy competition between public sector banks and private sector banks was essential. (8) The report envisaged flow of capital to meet higher and unspecified levels of capital adequacy and reduction of targeted credit. SARFAESI ACT, 2002: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court. The Act provides three alternative methods for recovery of non-performing assets, namely: Securitisation Asset Reconstruction Enforcement of Security without the intervention of the Court The provisions of this Act are applicable only for NPA loans with outstanding above Rs. 1.00 lac. NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act. Non-performing assets should be backed by securities charged to the Bank by way of hypothecation or mortgage or assignment. Security Interest by way of Lien, pledge, hire purchase and lease not liable for attachment under sec.60 of CPC, are not covered under this Act The Act empowers the Bank: To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge their dues in full within 60 days from the date of the notice. To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank. To ask any debtor of the borrower to pay any sum due or becoming due to the borrower. Any Security Interest created over Agricultural Land cannot be proceeded with. If on receipt of demand notice, the borrower makes any representation or raises any objection, Authorised Officer shall consider such representation or objection carefully and if he comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate the reasons for non acceptance WITHIN ONE WEEK of receipt of such representation or objection. A borrower / guarantor aggrieved by the action of the Bank can file an appeal with DRT and then with DRAT, but not with any civil court. The borrower / guarantor has to deposit 50% of the dues before an appeal with DRAT. If the borrower fails to comply with the notice, the Bank may take recourse to one or more of the following measures: Take possession of the security Sale or lease or assign the right over the security Manage the same or appoint any person to manage the same

Essay on Critical Thinking/Reflection - 1393 Words

Assessing both critical thinking and the reflection process in learning, these aspects are both intertwined. Without one, you cannot have the other. With the use of critical thinking and reflection this thought process allows us to analyse, assess, evaluate, learn and develop arguments. However this can have a twofold affect in the learning process. The learning process means taking many aspects and perspectives into account to establish an argument. Critical thinking draws on questions such as: how, what, when, why and who to determine the quality of an argument and also the credibility. Although without critical thinking a conclusion cannot be drawn. Barriers to critical thinking must also be questioned, whether these are: doubt,†¦show more content†¦(Cottrell, Stella, 2005) states â€Å"poor criticism can result from making judgment based on too general an overview of the subject matter.† When developing an argument one must be careful not to make false or unfair a ssumptions and always look for alternative points of view. Doing this allows you to analyse and evaluate and make a more informed decision about an argument. Arguments are about reviewing, speculating and assessing. As a result of doing this, a line of reasoning can be established and conclusions made. Barriers such as critiquing an argument can have a positive effect in critical thinking and the learning process as it allows a person to question everything. One must also be careful when developing an argument and using the critical thinking skills not to make generalisations and jumping to a conclusion. Critical thinking is the skill of thinking about your own thinking and perspectives. Critical questioning is an important part of the critical thinking process. Questioning how, what, when, why and who are all essential parts to evaluate and analyse a quality of an argument. By doing this it allows deeper thought and allows you to find an argument. This is described through (Dwyer, Judith, 2009) stating that critical thinking is: â€Å"purposeful, self-regulatory judgement that occurs when an issue is raised, a problem needs to be solved, opinions are reconsidered or experiences carefully reflected upon.† WithShow MoreRelatedCritical Thinking Reflection Essay579 Words   |  3 PagesCritical thinking is a significant and essential topic in recent education. The strategy of critical thinking skills helps identify areas in ones courses as the suitable place to highlight, expand and use some problems in exams that test students critical thinking skills. 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Reflective Essay on Broken Telephone †Free Sample Solution

Question: Write about theReflective Essay on Broken Telephone. Answer: This particular discourse will discuss the impact of the potential communication process, which I have learned in my class. In order to understand the necessity of the communication in the workplace, our lecturer suggested to play a game, named broken telephone, which is also known as Chinese Whispers. There were 40 students in my class and all of the students need to be divided into 3 groups, therefore, there were 13 members in every group for performing the class activity. Following the rule of the game, there was a message for every three groups, which required to be transmitted from one member to the other. The message for the game was Justin Timberlake is coming to POMO to perform for Christmas. This particular message was whispered from the first student to the last student in sequence within the every group. At the end of this game, there were completely different messages from the first whispered message by the lecturer. I was surprised to find the changes of the meaning of t he message because of noisy class environment. During the class activity, we all were excited to participate, as it was an interesting game. However, the lecturer of our class, who whispered the message to the first receiver of the group, initiated the game. There were chattering and constant discussion within the group regarding the game, which I consider as noise and it could be concerned as a noise barrier for the class activity. My group members surprised to find out that the message comes from the last student were different from the first student. I have analysed the reason for such incidents and have found that his happen only because of different ethnicity, language, and pronunciation within the group. Even I was surprised to find there was some severe lack of listening and receiving the messages in a clear manner and to pass the same message they have heard. Communication can be treated as an essential medium to maintain confidentiality within the workplace. I have understood from my class communication can play an essen tial role in the workplace. The lecturer provides enough reason for the miscommunication and the major reason was noise barriers. We learned from the class activity on broken telephone that communication is significant for the workplace because of its capability of resolving critical issues encountered by the regular customers of a company. The game was easy and interesting; however, it clearly reveals the drawback of communication, which relies only on one sender. Ultimately, the bad communication process will influence the business functions of the workplace; therefore, there will be a hamper on obtaining the decided goals for achieving the best position in the particular industry. Because of the communication problem, the associates cannot interact with the customers and it clearly influences the customer's satisfaction level in an immense manner. However, as the broken telephone game helped me to understand the significance of communication in the workplace, therefore, I think I can perform in best way within my future organisation. I believe I can perform in a better manner after this class activity on bro ken telephone as it helps me to understand the necessity of communication and the influence of noise barriers.

Nafta Essays (1131 words) - Mexico, Free Trade Agreements Of Canada

Nafta In January 1994, the United States, Mexico, and Canada implemented the North American Free Trade Agreement (NAFTA), forming the largest free trade zone in the world. The goal of NAFTA is to create better trading conditions through tariff reduction, removal of investment barriers, and improvement of intellectual property protection. NAFTA continues to gradually reduce tariffs on set dates and aims to eliminate all tariffs by the year 2004. Before NAFTA was established, investing in Mexico was a difficult process. Investors needed the Mexican Government's approval and were also required to meet specific investment guidelines. These requirements necessitated investors to export a set level of goods and services, utilize domestic goods and services, and transfer technology to competitors. Under NAFTA, investors no longer need government approval to invest and are treated as domestic investors. NAFTA has also increased intellectual property rights and allowed companies to obtain patents i n Mexico and Canada. In the past, companies were hesitant to export research and development intensive goods; with increased intellectual property protection, however, exports of these goods have shown a definite increase. As a result of better trading conditions, exports and imports of most other goods have increased along with the research and development intensive goods. In Mexico, the elimination of investment barriers has allowed investment to expand. Increased trading and investment has then created many jobs, raised the Gross Domestic Product, and lowered consumer prices. The free trade that NAFTA has established among the United States, Mexico, and Canada has greatly benefited the U.S. economy. During the years from 1994 to 1997, U.S. trade with Mexico and Canada rose 44 percent. This extensive growth is accredited primarily to the reduction of tariffs. As tariffs were lowered, U.S. goods became cheaper and more competitive in Mexican and Canadian markets, and at this lower price level the quantity demanded of U.S. goods increased. Therefore it becomes less expensive for U.S. firms to supply goods to Canada and Mexico as the supply curve shifts upward. In order to meet the new demand, the firms must hire new workers and increase investment. Between 1994 and 1997, 90 to 160 thousand jobs were created in the U.S. due to the increase of trade with Mexico, and 2.4 million jobs were dependent upon trade with Mexico and Canada (Harbrecht 12). The increase in employment and investment then leads to increased national income. The work of NAFTA has also served to benefit Mexico's economy; in accordance with the United States' economy, Mexico's exports have increased, more than doubling since 1993. The elimination of investment barriers has caused a dramatic rise in foreign investment from four billion in 1993 to ten billion dollars in 1998. NAFTA has enabled Volkswagen, IBM, and the textile industry to seek labor and materials in Mexico. In 1994, a Canada-based entrepreneur invested four million dollars in a metal-stamping plant. The plant is now a major material suppler for Volkswagen although it was originally intended to employ only 130 people. The plant currently employs 1,300 workers and generates 57 million dollars in sales each year (Ebrahim 24). NAFTA has also allowed IBM to create plants in Guadalajara that would otherwise have been built in Asia. As a result, the exports of IBM de Mexico have increased from 350 mil lion to 2 billion dollars in five years and the increased exports have created over 270 jobs (Ebrahim 26). Mexico's textile industry, too, has grown as a result of NAFTA, in 1996 overtaking China to become the largest supplier of textiles to the United States. U.S. mills invest hundreds of millions of dollars to build plants in Mexico as an effect of the reduced tariffs and shipping time. It takes only eighteen hours to ship goods to the Mexican border, while it takes twenty-one hours to China. Increased investment and exports have created jobs and increased GDP. In 1998, Mexico's economy grew 4.5 percent and economists predict that it will grow an additional 2.5 percent in '99 (Harbrecht 35). Free trade under NAFTA has also encouraged international specialization, the production of only the goods that a particular economy can produce most efficiently. If the U.S. for example, is efficiently manufacturing cars and Mexico, producing corn, then the U.S. should produce