Inspira-Journal of Commerce, Economics & Computer Science (JCECS) 78

ISSN : 2395-7069 General Impact Factor : 2.7273, Volume 05, No. 02, April-June, 2019, pp. 78-81

CONTEMPORARY ISSUES AND CHALLENGES OF BANKING IN INDIA

Prof. (Dr.) K. P. Bairagi

ABSTRACT

The changes in banking technology and lifestyle of the customer have provided opportunity to
grow Banking sector in India. A bank is financial institution help its customers as creditor to grow their
business by providing loans and advances as well as it helps to its customer as debtor by accepting
deposits and providing interest as sources of income for their own development. So the development of
Trade, Business and Industries mostly depends on the efficient finance system of banking in the nation.
The development of any nation mostly depends on the development of trade, industries and business.
Unfortunately, in last decades, the banking sectors facing many problems like, huge amount of NPA,
major scams and frauds, managerial problems, horrible recovery system and frauds related to online
banking and internet banking and so on. All these problems have increases the NPA and losses of banks
in India. The GOVT of India is providing huge fund every year to banks. In the year 2016 he govt has
sanctioned 1 lakh corers as capital to the Indian Banks. In this paper an attempt has been made to find
out the challenges and issues created by new technology in banking sector. For ex., E-Banking and
internet banking i.e. cyber attack etc.

KEYWORDS: Mobile Banking, NPA, Capital Adequacy, New Technology, Cyber Attack.
_______________
Introduction
In 1991, India accepted the polity of LPG. It creates impact on all sector like, banks, labour,
industries and so on. The new economic reform has increased the need and importance of banking
sector for the development of nation. The govt has made many changes in banking policy. The Indian
government launched the scheme of Jan-Dhan under this many accounts were opened in the bank.
Similarly government launched and implementing compulsory Direct Benefit Transfer so every citizen of
India is required their account in a bank for transfer of subsidy, scholarship and other benefits of
government. During last decade on these accounts customer of banks have been increased
tremendously. Similarly government is liberal in providing loans to the customer like Mudra loan, start up,
opening of SME and MSME branches for small scale industries and traders etc. During this decade the
govt has introduced cashless policy for all transaction, the speed of the internet is also increased from 2g
to 4g and due to this all changing technology many challenges exist in banking sector. Most of the
transactions are done by using internet banking and mobile banking. Now it is the challenge before the
banks to adopt and improve the technology, and to make control over control over the scams and cyber
frauds in banking sector.
Objectives of the Study
 To study the present status of Banks in India
 To find out the issue and challenges of Banking sector in India.
 To study the problems and challenges created by modern technology in banking system.
 To make recommendations to solve the problems and overcome challenges of banking system
in India.


Principal, Huzurpaga Mahila Vanijya Mahavidyalaya, Pune, Maharashtra, India.

Assistant Professor, Huzurpaga Mahila Vanijya Mahavidyalaya, Pune, Maharashtra, India.
Prof. (Dr.) K. P. Bairagi & Mrs. Asmita Kulkarni: Contemporary Issues and Challenges of Banking in India 79
Methodology
This research paper mostly depends on secondary data collected through, annual reports of
Bank and monthly RBI bulletin published by RBI. Some of the information required to research, also
collected through the journals and periodicals published by government and banking articles written by
stalwarts and experts in banking sectors.
Data Analysis
 Frauds and Scams During last Five Years
The details of the frauds and scams in banking sector shows that modern technology itself
created many problems and challenges and it become easy to deceive bank.
Sr. Year Name of Bank Name of Fraud Amount of Total
No Fraud Amount for
(in Cr) the Year
1 2011 Bank of Maharashtra, Oriental Bank Fictitious account 150 150
and IDBI
2 2014 Central Bank Electrotherm India 436 10686
Public Sector Bank Fixed Deposit Frauds 700
Central Bank BipinVohra 1400
Syndicate Bank S K Jain 8000
Union Bank of India, SBI, PNB Vijay Mallya
3 2015 Central Bank Jain Indra Project 200 6200
Employees of Various Banks Forex scam 6000
4 2016 Syndicate Bank Fake cheques 1000 10
5 2017 IDBI Bank Kingfisher airlines 9500 20720
Indian Banks Winsome Diamonds 7000
Public Sector Banks Deccan Chronicle 1161
holdings
20 Banks Niles Parekh 2223
Bank of Maharashtra Logistic Company 836
6 2018 PNB and 17 other Banks Nirav Modi 11450 11450

This table shows that the amount of frauds and scams increasing year by year because of
industrialist employees and Managing Directors of banks.
 Data regarding NPA of all Banks

The total average recovery of all banks in India is 26% while the average recovery of private
sector banks is 41% as compare to public sector banks at 25%. During this period from 2005-06 to 2016-
17 is finds that the recovery of all banking is increasing. It also observed that the banks are now providing
secured loan as compare to unsecured loan.
80 Inspira- Journal of Commerce, Economics & Computer Science: Volume 05, No. 02, April-June, 2019

This table shows that legal recovery is more than the non-legal recovery like, SARFAESI and
Lok Adalat. DRT is the only system to recover the loan given by Bank.
 Profit and loss of Indian Banks
Rs (in Crores)
Mar'18 Mar'17 Mar'16 Mar'15 Mar'14
Total income 19519.48 18251.12 18025.20 17216.30 16620.89
Total expenditure 7356.57 5786.04 5121.71 4217.90 4151.86
Profit and Loss for the Year 1258.99 1405.68 711.38 1005.17 1158.94
Source: https://economictimes.indiatimes.com/indian-bank/profitandlose/companyid-8614.cms
This table shows that total sale of the bank is raising but the income of the bank is nor raising
accordingly. The profits of the banks are not raising according to the business of bank. In the above table
it is observed that business in 2014 is 15.249.21 whereas in 2018 is 17113.65.
Challenges before the Banks
 Losses in Rural Branches
Most of the rural branches are running at a loss because of high overheads and prevalence of
the barter system in most parts of rural India.
 Large Over-Dues
The small branches of commercial banks are now faced with a new problem—a large amount of
overdue advances to farmers. The decision of the former National Front Government to waive all loans to
farmers up to the value of Rs. 10,000 crores has added to the plight of such banks.
 Non-Performing Assets
The commercial banks at present do not have any machinery to ensure that their loans and
advances are, in fact, going into productive use in the larger public interest. Due to a high proportion of
non-performing assets or outstanding due to banks from borrowers they are incurring huge losses. Most
of them are also unable to maintain capital adequacy ratio.
 Advance to Priority Sector
As far as advances to the priority sectors are concerned, the progress has been slow. This is
partly attributable to the fact that the bank officials from top to bottom could not accept nationalisation
gracefully, viz., and diversion of a certain portion of resources to the top priority and hitherto neglected
sectors. This is also attributable to the poor and unsatisfactory loan recovery rates from the agricultural
and small sectors.
 Competition from Non-Banking Financial Institution
As far as deposit mobilisation is concerned, commercial banks have been facing stiff challenges
from non-banking financial intermediaries such as mutual funds, housing finance corporations, leasing
and investment companies. All these institutions compete closely with commercial banks in attracting
public deposits and offer higher rates of interest than are paid by commercial banks.
Prof. (Dr.) K. P. Bairagi & Mrs. Asmita Kulkarni: Contemporary Issues and Challenges of Banking in India 81
 Competition with Foreign Banks
Foreign banks and the smaller private sector banks have registered higher increase in deposits.
One reason seems to be that non-nationalised banks offer betters customer service. This creates the
impression that a diversion of deposits from the nationalised banks to other banks has probably taken place.
 Gap between Promise and Performance
One major weakness of the nationalised banking system in India is its failure to sustain the
desired credit pattern and fill in credit gaps in different sectors. Even though there has been a
reorientation of bank objectives, the bank staff has remained virtually static and the bank procedures and
practices have continued to remain old and outmoded. The post-nationalisation period has seen a
widening gap between promise and performance. The main reason seems to be the failure of the bank
staff to appreciate the new work philosophy and new social objectives.
 Bureaucratisation
Another problem faced by the commercial banks is bureaucratisation of the banking system.
This is indeed the result of nationalisation. The smooth functioning of banks has been hampered by red-
tapism, long delays, lack of initiative and failure to take quick decisions.
 Political Pressures
The smooth working of nationalised banks has also been hampered by growing political
pressures from the Centre and the States. Nationalised banks often face lots of difficulties due to various
political pressures. Such pressures are created in the selection of personnel and grant of loans to
particular parties without considering their creditworthiness.
Prospects
 Rising Customer: Due to adoption of Financial Inclusion and Jan Dhan Yojana and DBT,
customers of banking are ever increasing.
 Fast and Modern Technology: Today Technology is dynamic and ever changing banks need
to change according to change in the technology.
 Increase in Deposit: Due to financial inclusion the CASA deposits of customers are increasing
so banks have ample cash for their working capital.
 Increasing Types of Services: Now a days banks are providing other financial services like
insurance, dealing in buying and selling shares, bonds and land etc.
 Fast Loan System: Most of the foreign and private and cooperative banks are providing loans
on instant basis so banks have good opportunity if they provide loan on urgent basis.
 Huge Market: Due to modernization and globalization there is ever increase in the funds by the
traders, businessman and even citizen.
 Advance Services Like e-banking, Mobile Banking: Now a day's customer need banking
service without visiting to the bank. Hence bank should provide latest and modern technology
like e-banking, mobile banking etc.
Conclusion
In modern era banking service is the need of the all traders, businessman as well as every
citizen. Due to change in the technology expectation of the customer is increased. There is political
pressure on the nationalized banks. Most of the rural bank are running in a loss. Private Banks are
giving loans on fast and urgent basis.
References
 https://www.timesnownews.com/business-economy/companies/article/bank-frauds-nirav-modi-
fraud-rs-11400-crore-top-financial-institution-scams-in-india-vijay-mallya-winsome-
diamonds/199024
 https://rbi.org.in/Scripts/PublicationsView.aspx?id=18060
 http://www.economicsdiscussion.net/banks/nationalized-banks/9-major-problems-faced-by-
indias-nationalized-banks/12927
st
 Anarthkari sangharsh - article by Rajeev Joshi; 1 November 2018 in Maharashtra Times, Pune.
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