impact of recession on indian banking sector

Impact of Recession on

Indian Banking Sector

Dr. Tushar Chaudhari,

Assistant professor,

Seth Kesarimal Porwal College, Kamptee

Overview

Indian Banking Scenario

Recession

Impact of recession on Indian Economy

Impact of recession on Indian Banking

Sector

Early phase (1786 to 1969)

General bank was established in

1786.

In 1865 Allahabad bank was

established by Indians only.

The Government of India came up

with The Banking Companies Act,

1949

Nationalization

1955 : Nationalisation of State Bank of

India.

1959 : Nationalisation of SBI

subsidiaries.

1961 : Insurance cover extended to

deposits.

1969 : Nationalisation of 14 major banks.

1971 : Creation of credit guarantee

corporation.

1975 : Creation of regional rural banks.

1980 : Nationalisation of seven banks

After Liberalization 1991

A committee was set up under the chairmanship of M Narasimham, which worked for the liberalisation of banking practices.

Phone banking and net banking is introduced

Specialized loans (like horticulture, aquaculture, animal husbandry, floriculture and sericulture businesses) to meet specific needs of the farmers were offered by the banks.

Structure of Indian Banking

Sector

Percentage of contribution of

banking sector to GDP

2006-07 2007-08 2008-09 2009-10 2010-11

5.5 5.5

5.6

5.4

5.8

Market Share of banks

67.2

18.7

6.5

2.73.4

1.5

Public sector Banks

Private sector Banks

Foreign Banks

Regional Rural Banks

Rural and urbancooperative banks

Local Area Banks

Source :- RBI

Banking Sector and Economy

Banking Sector

Employment

Income

Saving

Investment

Production

consumption

Industrial Development

Indian banking Sector will be the

third highest in the world by 2025

Source: BANCON 2012

Future of Indian Banking

sector Mortgages to cross Rs 40 trillion by 2020

Wealth management will be big business with 10X

growth

The number of branches to grow 2X; ATMs to

grow 5X

Mobile banking to see huge growth

Customer Relationship Management (CRM)

Banking margins will come under pressure

New models to serve the Small and Medium

Enterprises

Infrastructure financing to hit over Rs 20

Major before Challenges indian

banking sector

Modified new rules

Efficiency

Diffused customer loyalty

Competency Gap

Recession in the world

Recession in the world

Effect of recession on Indian

economy

Indian Economy

Financial Sector

ExportsExchange

Rate

Effect of recession on India’s

GDP

Year GDP-Real

Growth

Rate

Percentage

change

2003 4.30% --

2004 8.30% 93.02%

2005 6.20% -25.30%

2006 8.40% 35.48%

2007 9.20% 9.52%

2008 9.00% -2.17%

2009 7.40% -17.78%

2010 7.40% 0.0%

Source :- RBI

GDP Growth Rate

Source :- RBI

Effect of recession on Indian

banks

Bank have suffered losses including some

public sector banks namely Punjab National

Bank, Bank of India, State Bank of India and

Bank of Baroda as they have exposure to

instruments issued by Lehman and Merrill

Lynch.

Reason for non failure of Indian

banking system during recession

Traditional working of banks

Strong base of nationalized banks

Effective control of RBI

Role of finance Ministry

Recession will be back

The overwhelming majority of mainstream economists predict that the world’s biggest economy should have at least another two years before it runs into six months of negative growth (the official definition of recession). After 2015, however, the date for the next recession could be any time between the end of 2015 to 2018, according to economists’ forecasts.

Recession will be back

These predictions are based on the

assumption that the U.S. manages to

avoid the possibility of defaulting on its

debt repayments for the first time in its

history — the prospect of which looms

nearer every day as the government

shutdown continues.

Recession will be back

Consumer spending, usually a big

driver of growth in the U.S., has not

picked up in the way many economists

forecast. In September, banks

including JP Morgan and Barclays

downgraded their forecasts for U.S.

gross domestic product growth in the

third quarter, after a worse-than-

expected retail sales rise of 0.2

percent in August.

Recession will be back

Historical data show a recession in the

U.S. on average every 6-7 years since

1947, and double-dips within eight

years of big recessions like the Great

Depression.

Lessons to be learned from

recession

Just because you can qualify to

borrow money doesn't mean you

should

A house is primarily a place to live

Stock prices can keep falling a very

long time

Your job is your greatest asset