Banking and finance

The Indian money market is classified into the organised sector, comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks, and the unorganised sector, which includes individual or family owned indigenous bankers or money lenders and non banking financial companies. The unorganised sector and microcredit are still preferred over traditional banks in rural and sub urban areas, especially for non productive purposes, like ceremonies and short duration loans.

Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in 1980, and made it mandatory for banks to provide 40 Percent of their net credit to priority sectors like agriculture, small scale industry, retail trade, small businesses, etc. to ensure that the banks fulfill their social and developmental goals. Since then, the number of bank branches has increased from 8,260 in 1969 to 72,170 in 2007 and the population covered by a branch decreased from 63,800 to 15,000 during the same period. The total bank deposits increased from INR59.1 billion US$930 million in 1970 71 to INR38309.22 billion US$600 billion in 2008 09. Despite an increase of rural branches, from 1,860 or 22 Percent of the total number of branches in 1969 to 30,590 or 42 Percent in 2007, only 32,270 out of 500,000 villages are covered by a scheduled bank.

India s gross domestic saving in 2006 07 as a percentage of GDP stood at a high 32.8 Percent. More than half of personal savings are invested in physical assets such as land, houses, cattle, and gold. The government owned public sector banks hold over 75 Percent of total assets of the banking industry, with the private and foreign banks holding 18.2 Percent and 6.5 Percent respectively. Since liberalisation, the government has approved significant banking reforms. While some of these relate to nationalised banks, like encouraging mergers, reducing government interference and increasing profitability and competitiveness, other reforms have opened up the banking and insurance sectors to private and foreign players.