Page 38 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 3: Financial Institutions

3.5 Emergence of Private Sector Bank after Liberalization Notes

Without a sound and effective banking system in India it cannot have a healthy economy. The
banking system of India should not only be hassle free but it should be able to meet new
challenges posed by the technology and any other external and internal factors.
For the past three decades India's banking system has several outstanding achievements to its
credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or
cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of
the country. This is one of the main reasons of India's growth process.
Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or
for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient
bank transferred money from one branch to other in two days.
The commercial banks in India are categorized into foreign banks, private banks and the public
sector banks. They indulge in varied activities such as acceptance of deposits, acting as trustees,
offering loans for the different purposes and are even allowed to collect taxes on behalf of the
institutions and central government.
India embarked on a strategy of economic reforms in the wake of a balance-of-payments crisis
in 1991; a central plank of the reforms was reforms in the financial sector, and with banks being
the mainstay of financial intermediation, the banking sector. At the same time, reforms were
also undertaken in various segments of financial markets, to enable the banking sector to
perform its intermediation role in an efficient manner. The thrust of these reforms was to
promote a diversified, efficient and competitive financial system, with the ultimate objective of
improving the allocative efficiency of resources, through operational flexibility, improved
financial viability and institutional strengthening.
The first Private Bank in India to receive an in principle approval from the Reserve Bank of India
was Housing Development Finance Corporation Limited, to set up a bank in the private sector
banks in India as part of the RBI's liberalisation of the Indian Banking Industry. It was incorporated
in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced
operations as Scheduled Commercial Bank in January 1995.
Today there are more than 20 private banks operating in India. The most popular of them are as
under, viz.
1. Bank of Punjab
2. Bank of Rajasthan
3. Catholic Syrian Bank
4. Centurion Bank

5. City Union Bank
6. Dhanalakshmi Bank
7. Development Credit Bank

8. Federal Bank
9. HDFC Bank
10. ICICI Bank
11. IDBI Bank
12. INDUSIND Bank

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