A Study of The Evolution of Indian Banking Industry and Its Challenges

One of the traits of a developed economy is a well-developed, structured and efficient banking system. A well-developed banking system leads to increasing the efficiency of economy by mobilising savings and allocating them to a higher return investment. The Indian banking industry development can be categorised into the three distinct phases whereby the first phase is characterised by the establishment of the first bank in India- “Bank of Hindustan” to the passing of Banking Regulation Act,1949. The second phase is characterised by the nationalisation of banks in 1969 and the reforms after 1991 are referred to as third phase of Indian banking industry. The paper dwells into the scheduled commercial banks status quo in economy by identifying the largest public sector and private sector banks by market capitalisation, reach of the commercial banks to customer across the nations by analysing the number of branches of largest public sector and private sector banks and ATMs facility provided by the banks. In order to identify the health of the Indian banking industry the present study then examines the credit deposit ratio, non-performing assets and its impact on the profitability of public sector banks. Credit deposit ratio of private sector bank was much higher than the private sector bank where public sector banks had a credit deposit ratio of 69.83% in 2018-19 as compared to 88.26% credit deposit ratio of private sector bank during the same period. The public sector banks NPA in the year 2017-18 was 454473 crore rupees which however reduced to 285123 crore rupees in the year 2018-19. The net NPA as percentage of net advances during this period stood at 4.8%.The growing NPA of public sector banks effected the profitability of banks and lead to a loss of 81752 crore in the year 2018-19. The private sector banks NPA stood at 64380 crore rupees in the year 2017-18 which increased to 67309 in the year 2018-19. The study main objective was to understand the evolution of Indian banking industry and its challenges.