The Turnaround of Indian Bank
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Case Code: BSTR104 Case Length: 10 Pages Period: 1992 - 2004 Pub Date: 2004 Teaching Note: Available |
Price: Rs.300 Organization: Indian Bank Industry: Banking & Finance Countries : India Themes: Turnaround Strategy |
Abstract Case Intro 1 Case Intro 2 Excerpts
Background Note
Indian Bank was set up as part of the Swadeshi Movement in 1907. Incorporated on March 5, 1907, with an authorized capital of Rs 20 lakh, the Bank commenced operations on August 15, the same year. During the first year of operations, the Bank received deposits of Rs 2,01,157 and made a profit of Rs. 5,505. Headquartered in Chennai (formerly known as Madras) in the south Indian State of Tamil Nadu, Indian Bank enjoyed a good customer base in the south. As a bank backed by the government, Indian Bank continued to flourish and boasted of the trust it had been enjoying since the early 1900s. The 'nine decades of trust', suddenly came under threat in the 1990s, when the GoI and the Reserve Bank of India (RBI)6 introduced a new set of norms for the banking sector. The once respected bank found itself with the ignominious distinction of being classified as one of the three weak banks in India, alongside UCO Bank7 and United Bank of India....
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...
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