Risk Management in Indian Banking - Assignment Example

The paper "Risk Management in Indian Banking" is an outstanding example of a business assignment. Currently, India has 96 scheduled commercial banks (SCBs), with the government of India holding a stake, 38 foreign banks and 31 private banks (Jaminaran, 2008). They have a network of over 49,000 ATMs and 53,000 branches (McKinsey & Company, 2007). According to a study by a rating agency, public sector banks have more than 75 per cent of total assets of the banking industry, with the foreign and private banks holding 6.5 per cent and 18.2 per cent respectively (Gibson, 2007). The Government of India initiated measures to play a major role in the nation’s economic life, and the Industrial Policy Resolution adopted by the government in 1948 visualized a mixed economy (Gopinath, 2007).

This led to the active involvement of the state in various segments of the economy including finance and banking. The major steps that were taken to regulate banking included (Gibson, 2007): (1) In 1948, India’s central banking authority, the Reserve Bank of India (RBI), was nationalized hence becoming a government-owned institution. (2) In 1949, the Banking Regulation Act was enacted and it empowered the RBI to control, inspect and regulate the Indian banks. (3) The Banking Regulation Act made a provision that no new branch or bank of an existing bank could be initiated without a license from RBI, and no two banks could share directors. Nevertheless, despite these provisions, regulations and control, banks in India, went on to be operated and owned by private individuals.

This changed with the introduction of the nationalization of major banks in India on 9 July 1989 (Gopinath, 2006). The Indian Nanking sector emerged as an important tool to facilitate the development of the Indian economy. It also became a large employer and a debate came up about the possibility to nationalize the industry. The reason for nationalization was to give the government more control of credit delivery (Mokashi, 2008). With the success of nationalization, the government was given the capability of controlling approximately 91 per cent of banking businesses in India (Gibson, 2007).