The word ‘Bank’ automatically summons images on money, money transactions and saving one’s hard earned money. That is an individual’s perception of a Bank. The larger picture extends far beyond that. Finance is the backbone of the economy of any country and it is the banks that play the role of major facilitators in the flow of finance.

In India, Banking began with indigenous bankers belonging to different communities who lent money on the security of jewels and also on promissory notes. They functioned both in urban and rural areas. Most of the loans were short-term, repayable with interest after the harvest of the crops, either in one or more installments. The conditions were informal in that the loans could be obtained at any time and without any security depending on the confidence and the relationship of the lender with the borrower.

Nevertheless, money-lenders and pawnbrokers had a great hold over agriculturists and others, and their success lay in their intimate knowledge of their customers. Besides the terms were mostly informal and there were no hard and fast rule about the security or interest.

Mont-De-Piete, called as pawn office, was set up by the French, by means of an ordinance dated May 1, 1827 initially at Pondicherry and set up similar institution at Karaikal. The Institution was provided with necessary funds from the reserve fund. It rendered reasonably good service to the needy sections of the population and notably the small agriculturists by providing them advances at reasonable rate of interest. The institution gave loans from Rs.3 to Rs.3,000 on the security of jewels and silver articles, the amount of loan ranging from 1/4th to 4/5th of the total value of gold ornaments or silver articles, as the case may be. The rate of interest was pegged at 8 percent per annum. As the institutions had only limited resources at their disposal, they were unable to meet the credit requirements of the people at large.

After decades of changes in the banking process, the Indian Bank survey in 1970 revealed that there was a good cause for establishing more and more branches of commercial banks in each territory. Moreover, it would be to the mutual benefit of the banks and the public if commercial banks could take to small lending against mortgage of jewels in a larger way. This would free the people from the exploitation of pawnbrokers and it would also promote the banking habit practice amongst the lower strata of the populace.

Today, India has a fairly strong banking industry in place. Thanks to the strong macro economic structure, Indian banks are fundamentally robust. In fact, banking is one distinct area where India leads China, whereas, on almost all major parameters that gauge a nation’s economic march, China leads India through huge margins. Whether it is the GDP or the exports earnings or production of energy, China invariably is 3 to 4 times ahead of India. Contrarily, however, it is the banking sector where the performance of Indian banks is much better than what it is in China where the NPA figures tell the sorry tale. It runs into 2 digits in percentage terms with no official version generally available, leaving the world to speculate on the menace. Some quote the NPA there even higher than 20% as against a very nominal incidence in India.

Banking in India has truly come of age. It is a matured dispensation here with a strong regulatory framework in place. Local banks as well as foreign banks flourish in India in tandem. The banking industry here has come a long distance over the last some time and has in recent times witnessed huge technology-driven innovations as articulated by banks like ICICI, HDFC amongst private banks and Citibank, HSBC, Standard Chartered etc amongst foreign banks. K V Kamath deserves kudos for a revolution of sorts brought out in the banking arena. When could the customer have dreamt an 8 AM to 8 PM banking regime with all possible technological applications and solutions across the country, villages alike? There is a strong message in his innovation which reads as thus: Reinventing is in our hands, We have to endeavor and reach our destinations. Nothing comes without an initiative or an endeavor. Banking was once considered an arena where there was only a stereo-type and almost defunct of innovation or efficiency, but, come an initiative from the likes of K V Kamath or for that matter from Naina Lal Kidwai or any other reforming CEO of yore, the entire turf has transformed beyond realm, and India today is seriously considering a foray into overseas banking to rake the moolah there, thanks to its prowess in the service arena. The public sector banks have not remained behind either, posting spectacular performances. Be it SBI, Bank of Baroda, PNB, Canara or IOB, the performances against the backdrop of competition from foreign banks as well as private banks, are pretty good. For instance, IOB has increased business by 46% in the last 2 years crossing the Rs. 1,00,000 Crore mark, and profitability too has increased by 46% in this period. Its Return on Assets has improved from 1.29% to 1.43% and the NPA in absolute terms, has reduced from Rs. 1388 Crores in March 2005 to Rs. 1122 Crores in December 2006 despite a growth in Gross Credit of almost 68%.

Banks in India, at large, have shown a great amount prudence and understanding of the customers needs and has been evolving processes to bring in a win-win dispensation for the banks and the customers alike. Indeed, banks have opened the doors to a brilliant, new future.