CASE OF INDIA

Impact of Foreign Bank Entry in Emerging Market Economy: Case of India

Impact of Foreign Bank Entry in Emerging Market Economy : Case of India

Methodology and Data Analysis

Theoretical Framework

Since the initiation of economic reforms in 1991-92, the banking sector in India has seen numerous developments and policy changes. The more important reforms initiated in the banking sector includes adoption of prudential norms in terms of capital adequacy, assets classification and provisioning, deregulation of interest rates, lowering of Statutory Liquidity Ratio (SLR) and Cash Reserve Ratio (CRR), opening of the sector to private participation, permission to foreign banks to expand their operations through subsidiaries, the introduction of Real Time Gross Settlement (RTGS) and liberalization of FDI norms. The main thrust of the banking sector reforms has been the creation of efficient and stable financial institutions and development of the banking industry. The reforms have been undertaken gradually with mutual consent and wider debate amongst the participants and in a sequential pattern that is reinforcing the overall economy.

Introduction of banking sector reforms have changed the face of Indian banking industry. The national, institutional and international boundaries are becoming less important. The globalization of operations and development of new technologies are taking place at a rapid pace. A paradigm shift in marketing philosophy of banks is visible from the rising focus towards quality of service for customers. All this has led to the increase in resource productivity, increasing level of deposits, credits and profitability and decrease in nonperforming assets (Charan Singh, 2005:45). The statistics on important indicators of the performance of Banking Industry in India as exhibited in Table-l reflect an appreciable growth of banks. The table also gives a hint that the public sector banks still dominates the scene of banking in India.

Table l: A Synoptic View ofIndian Banking Sector

Sr.No.

Variables

1998-99

1999-2000

2000-01

2001-02

2002-03

2003-04

1

Gross Advances

Public Sector Banks

325328

379461

442134

509369

577813

661975

Private Sector Banks

43049

58220

71237

120958

146047

177419

Foreign Banks

31059

37432

45396

50631

54184

62632

2

Net Advances

Public Sector Banks

297789

352714

415207

480681

549351

631383

Private Sector Banks

39731

56035

68059

116473

138951

145163

Foreign Banks

29492

35543

43063

48705

52171

60506

3

GrossNPAs

Public Sector Banks

51710 (15.9)

53033 (14.0)

54672 (12.4)

56507 (11.1)

54086 (9.4)

51541 (7.8)

Private Sector Banks

4655 (9.6)

4761 (7.4)

5963 (8.0)

11672 (9.9)

11800 (8.2)

10343 (6.3)

Foreign Banks

2357 (7.6)

2614 (7)

3106 (6.8)

2726 (5.4)

2829 (5.2)

3013 (4.6)

4

NetNPAs

Public Sector Banks

24211 (8.1)

26187 (7.4)

27977 (6.7)

27958 (5.8)

24963 (4.5)

19335 (3)

Private Sector Banks

2943 (6.7)

3031(5.0)

3700 (5.2)

6668 (6.0)

6883 (5.2)

4178 (3.1)

Foreign Banks

866 (2)

855 (2.4)

785 (1.8)

920 (1.9)

918 (1.8)

933 (1.5)

5

Loans and Advances

Public Sector Banks

325328

354071

414628

480118

549351

632740

Private Sector Banks

43049

54196

68058

116841

138951

170896

Foreign Banks

31059

35858

42997

48478

52171

60507

6

Market Share in Advances (%)

Public Sector Banks ...