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Recently, the Indian banking sector has witnessed the introduction of several "new private banks," either newly founded, or created by previously extant financial institutions. The new private banks have grown quickly in the past few years, and one has grown to be the second largest bank in India.
India has also seen the entry of over two dozen foreign banks since the commencement of financial reforms. While we believe both of these types of banks deserve study, our focus here is on the older private sector, and nationalized banks, since they represent the overwhelming majority of banking activity in India.

Consolidation in the Indian Banking Industry

To get a perspective on the recent developments lets look first at what's happened between 1969, when the first set of 14 private banks was nationalized, and now. During these years, the banking landscape changed dramatically. In 1969, India had 89 commercial banks. By March 2004, this number had climbed to 290. In 1969, there were 73 scheduled commercial banks (SCBs). Now, there are 90 of them, excluding the 196 regional rural banks (RRBs). The total number of branches during the three-and-a-half decades jumped over eight-fold, from 8,262 to 69,071. The growth has been phenomenal in rural India where the number of branches zoomed from 1,833 to 32,227. In contrast, the number of branches in the metropolitan cities grew at a slower pace, from 1,503 to 9,750. The total deposits of all scheduled commercial banks shot up by almost 332 times and their advances soared 240.50 times.

Yet, nobody denies that India is under-serviced. A country of 1.1 billion people has only about 250 million account holders. But if one excludes those with multiple accounts, especially in metropolitan and urban bank branches, the number would drastically come down. Despite lazy banking (a term Reserve Bank of India deputy governor Rakesh Mohan coined for commercial bankers who prefer to invest money only in zero risk government securities), the industry has been growing by 15-17 per cent annually, versus the 1-2 per cent growth rate of European banks.

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* Contributed by -
Pritesh Y. Chothani, Ritesh Sud & Rachna Srivastava,
PGDBM 2006,
IMT, Ghaziabad.