The Turnaround of Indian Bank
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Case Code : BSTR104
Case Length : 10 Pages
Period : 1992 - 2004
Organization : Indian Bank
Pub Date : 2004
Teaching Note : Available
Countries : India
Industry : Banking & Finance
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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The Indian Banking Sector
The GoI realized the importance of a strong banking sector for the development of the country and gave due importance to banking. Before India's independence in 1947, banking was essentially an informal, local process, with moneylenders playing a prominent role. Banking institutions were usually private bodies and operated at the local level.
After 1947, the RBI and the State Bank of India (SBI)9 played a prominent role in the Indian banking sector along with other private banks. In keeping with the country's principle of socialism, the GoI undertook nationalization of several private banks in 1969. In the first phase of the nationalization program, 14 banks were taken over by the government.
The second phase of nationalization was initiated in 1980, when six other banks were made PSBs. This brought the number of PSBs to 28 - 20 nationalized banks and the eight associate banks of SBI. In 1993, the New Bank of India merged with the Punjab National Bank to form a single entity, bringing down the number of PSBs to 27.
Besides PSBs, private banks, foreign banks, Regional Rural Banks (RRBs)10 and cooperative banks also formed a part of the banking sector. There were also specialized financial institutions like the Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI) and the National Bank for Agriculture and Rural Development (NABARD), which provided loans and finance to certain sectors.
With branches numbering well over 60,000 and deposits of Rs 1, 10,000 crore, PSBs held a combined market share of 90 percent by the early 1990s.
One important reason behind the continued success of PSBs was the assistance and backing of the government. According to analysts, most PSBs depended on the government for their additional capital requirements and received regular infusion of funds to maintain capital adequacy.
Apart from a few cases, where additional capital was needed to support a growing volume of business, most of the banks depended on additional funds to sustain their regular business, which was on the decline because of chronic weaknesses in the banks...