Financial Liberalization and Banking Performance of Private Sector Banks In India
The Impact of Financial Liberalization on Private Sector Banks in India
by Irfan Ul Hasan*,
- Published in International Journal of Information Technology and Management, E-ISSN: 2249-4510
Volume 5, Issue No. 1, Aug 2013, Pages 0 - 0 (0)
Published by: Ignited Minds Journals
ABSTRACT
Banking industry isconsidered as the backbone of Indian economy. After liberalization of thepolicies by the government, the banks have to be more competitive andperformance-oriented in the new environment. In this paper we analyzedfinancial liberalization and banking performance of private sector banks inIndia.
KEYWORD
financial liberalization, banking performance, private sector banks, India, competitive, performance-oriented, policies, government, new environment
INTRODUCTION
The regulations in India are commonly characterized as "financial repression". The financial liberalization literature assumes that the removal of repression policies will allow the banking sector to better perform its functions of mobilizing savings and allocating capital what ultimately results in higher growth rates. If India wants to achieve its ambitious growth targets of 7-8% per year as lined out in the Common Minimum Programme of the current government, a successful management of the systemic changes in the banking sector is a necessary precondition. While the transition process in the banking sector has certainly not yet come to an end, sufficient time has passed for an interim review. The objective of this paper therefore is to evaluate the progress made in liberalizing the banking sector so far and to test if the reforms have allowed the banking sector to better perform its functions.
REVIEW OF LITERATURE:
The Imperial Bank of India was nationalized and its undertaking was taken over by the State Bank of India (SBI) in1955.It was done for the purpose of imposing social control with a view to remedy the basic weaknesses of the Indian banking system and to ensure that banks would cater to the needs of the hitherto neglect and weaker sections of community instead of big business and those connected with them. On July19, 1969, 14 major banks and on April15, 1980, six banks were nationalized. The object other nationalization was to render the largest good to the largest number of people.
IMPACT OF LIBERALIZATION ON THE PERFORMANCE OF INDIAN BANKING SECTOR:
The reforms in the banking industry started in the early 1990s have been continued till now (Bansal, 2004). The Narasimham Committee, 1991 had recommended several reforms in banking sector with the change wind of financial sector reforms (Sekhar, 2007) the winds of change gained momentum in the last few years, such as globalization of Indian economy and opening up of financial services under WTO. It is expected that the banking sector will undergo mergers and acquisitions (M&A), consolidation, globalization of operations, development of new technology, best corporate governance practices and universalization (Sekhar, 2007), the impact of economic liberalization on the performance of Indian banking sector in the last decade and also the impact of banking sector reforms on the Indian banking sector. Roma Mitra, Shankar Ravi (2008), A stable and efficient banking sector is an essential precondition to incr.ease the economic level of a country. This paper tries to model and evaluate the efficiency of 50 Indian banks. The Inefficiency can be analyzed and quantified for every evaluated unit. The aim of this paper is to estimate and compare efficiency of the banking sector in India. The analysis is supposed to verify or reject the hypothesis whether the banking sector fulfils its intermediation function sufficiently to compete with the global players. The results are insightful to the financial policy planner as it identifies priority areas for different banks, which can improve the performance. This paper evaluates the performance of Banking Sectors in India.
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B.Satish Kumar (2008), in his article on an evaluation of the financial performance of Indian private sector banks wrote Private sector banks play an important role in development of Indian economy. After liberalization the banking industry underwent major changes. The economic reforms totally have changed the banking sector. RBI permitted new banks to be started in the private sector as per the recommendation of Narashiman committee. The Indian banking industry was dominated by public sector banks. But now the situations have changed new generation banks with used of technology and professional management has gained a reasonable position in the banking industry.
In recent years the frontier analysis method has been quite popular. Several studies have been carried out to measure the banking sector performance (efficiency) using the frontier analysis method (Abbasoglu et. al, 2007; Carbo et. al, 2002). The frontier analysis separates the institutions those perform better relative to a particular standard from the institutions those performances are poor. Such separations can be done by using a parametric or non-parametric frontier analysis.
CONCLUSION:
In this paper we found that the ability of banks to face competition will depend on their determined efforts at logical up gradation and improvement in operational and managerial efficiency, improvement in customer service, internal control, house- keeping and augmenting productivity and profitability. Extensive liberalization, determined stabilization and grow there vital for improving the financial sector. There is a close link between liberalization and growth.
REFERENCES:
- Bansal, S. (2004), Impact of Liberalization on the Productivity and Profitability of Public Sector Banks in India, A Doctorate Thesis submitted to UBS, Panjab University, and Chandigarh.
- Sekhar, D. S. (2007), “Trends in Growth and Development: Nationalized Banks in India”, The Indian Banker, Vol.11, No.10, pp.28-32.
- http://shodhganga.inflibnet.ac.in/bitstream/10603/2875/12/12_chapter%204.pdf
- Abbasoglu, Osman Furkan, Aysan, Ahmet Faruk and Gunes, Ali (2007), “Concentration, Competition, Efficiency and Profitability of the Turkish Banking Sector in the PostCrises Period”, MPRA Paper No. 5494.
- According to Carbo et. al (2002), “Since the FF is a combination of polynomial and trigonometric expansions, the order of approximation can increase with the size of the sample size”.
http://www.igidr.ac.in/money/mfc-12/Financial%20liberalization%20and%20banking_santosh%20kumar%20das.pdf