Impact of banking sector on economy of India with relation to china

Comparative study of Indian and Chinese banking sector
and its role in their economic growth and development

Presented by:
SHIVAM KUMAR (A1802011101)
&
TARUNA GULATI (A1802011080)
AMITY INTERNATIONAL BUSINESS
SCHOOL,NOIDA

OBJECTIVES

To Study the impact of Banking sector on Economy.

Comparison of India and China on the basis of banking
system and its role in economic growth and development.

Here comes your footer  Page 2

INTRODUCTION
The financial sector played an important role in the economic growth.

In financial Sector, Banking system may directly affect growth by
improving the access to financial services and indirectly by improving the
efficiency of financial intermediaries, both of which reduce the cost of
financing, and in turn, stimulate capital accumulation and economic growth.

Due to their influence within a financial system and an economy, banks are
generally highly regulated in most countries.

India has the Seventh largest geographic area of 32, 263 sq kms,whereas
China has Third Largest area of 9,596,961 sq. km.


The two countries have similar labor endowments and development lags
due to government controls and protected nature of their economies.

The Chinese culture is more homogeneous and Indian culture is great
diversified.

India lags behind china in infrastructure.

Primary, secondary education, vocational education training in china
results in 99.1% literacy rate, where as in India it is 50 to 60 %


INTRODUCTION

•The Reserve Bank of India, the nation’s central bank, began operations on
April 01, 1935. It was established with the objective of ensuring monetary
stability and operating the currency and credit system of the country to its
advantage.

•The scheduled bank are scheduled by Reserve Bank of India and they are fully
authorised to do banking business in India. Reserve Bank of India directly
control over it.

•Non-scheduled are not scheduled by Reserve Bank of India they do work under
Banking Regulation Act of India.

China Banking System

The People's Bank of China (PBOC) is China’s central bank, which
formulates and implements monetary policy. The PBOC maintains the banking
sector's payment, clearing and settlement systems, and manages official foreign
exchange and gold reserves.
The banking sector in China primarily comprises of state-owned commercial
banks and policy banks, the banking segment is mostly controlled by 4 state-
owned banks namely the Industrial & Commercial Bank of China (ICBC)
specialized in lending to industrial sector, China Construction Bank (CCB)
traditionally focused on infrastructure development, Bank of China (BOC)
conventionally responsible for foreign exchange and financing of imports &
exports and Agricultural Bank of China (ABC) primarily focused on lending to
agriculture and rural development contributing about 60-70% of the domestic
banking business.

Relation between Savings and Economic Growth




The Growth Drivers of Indian banking sector
High growth of Indian Economy: The growth of the banking industry is closely linked with
the growth of the overall economy

Rising per capita income: The rising per capita income will drive the growth of retail credit.

New channel – Mobile banking is expected to become the second largest channel for banking
after ATMs: New channels used to offer banking services will drive the growth of banking
industry exponentially in the future by increasing productivity and acquiring new customers.

Major concern of Indian banking sector:
1) Intensifying competition: Due to homogenous kind of services offered by banks, large
number of players in the banking industry and other players such as NBFCs, competition is
already high.

2) Managing Human Resources and Development: Banks have to incur a substantial
employee training cost as the attrition rate is very high. Hence, banks find it difficult manage
the human resources and development initiatives.
3) Increasing non-performing and restructured assets: Due to a slowdown in economic
activity in past couple of years and aggressive lending by banks many loans have turned non-
performing. Restructuring of assets means loans whose duration has been increased or the
interest rate has been decreased. This happens due to inability of the loan taking
company/individual to pay off the debt.

PORTER’S FIVE FORCES MODEL FOR BANKING SECTOR
Power of Buyers: Customer’s Bargaining Power is high
because banks provide homogeneous kind of services and
customers can get all information very easily so the
switching cost is low for the customer.

Power of Suppliers :In the banking industry supplier’s
bargaining power is low because banks have to meet many
regulatory criteria made by RBI.

Competitive Rivalry: Competition in the Banking Industry
is very High Because of large number of public, private,
foreign and co-operative banks.

Availability of Substitutes: There is a high threat from
substitutes such as mutual funds, T-bills, Government
securities and NBFC’s.

Threat of new Entrants: Banking regulations require the
approval of the regulator RBI before setting up a new
Here comes your footer  Page 9 bank,so the threat of new entrant is low.

Research Methodology

Purpose of this research is to ascertain the impact of banking
sector on the financial development and economic growth in
India in context with China.

Data Collection can be done in the form of two types:
Primary Data and Secondary data. But with respect to the
research based on banking sector and economic growth, the
probability of getting secondary data is higher than the primary
data.


Research Design
Descriptive cum comparative Research

 It aims to implement statistical research which describes data
and characteristics about the population or phenomenon being
studied.

Although the data description is factual, accurate and
systematic, the research cannot describe what caused a situation.


ANALYSIS


ANALYSIS CONTD…

According to the analysis ,GDP AND GDS of India and China has
high degree of correlation as their values are .991 and .999.which
means that if India and China increases their GDS by 100% there
will be a 99.1% of change in GDP of India and 99.9% change in
GDP of China.

In Regression Analysis, analysis GDP has been taken as
dependent variable and GDS has been taken as independent
variable and it is noticed that there is a significant correlation
between GDP and GDS.Further when ANOVA Test was applied,
the sum of squares in Regression model was having very less
residual value.So we can interpret that India & China has to make
balance between GDP and GDS.

ANALYSIS CONTD…
On the basis of the data, we can conclude that there is a
high degree of positive correlation, which means that if
there will be a certain percentage of change in deposits,
there will be same percentage change in GDP of India and
China.

In the Regression analysis, GDP has been taken as dependent
variable and GDS has been taken as independent variable and it is
noticed that there is a significant correlation between GDP and
GDS. Further when ANOVA Test was applied, the sum of squares in
Regression model was having very less residual value. So we can
interpret that India & China has to make balance between GDP and
GDS.

FINDINGS
GDP AND GDS of China has high degree of correlation as
its value is .999,which means that if China increases its GDS
by 100% there will be a 99.9% of change in GDP ,in same
direction.

There is a high degree of positive correlation between the
bank deposits and GDP of China which means that if there
will be a certain percentage of change in deposits, there will
be same percentage change in GDP, in same direction.

GDP AND GDS of India has high degree of correlation as
its value is .991,which means that if India increases its GDS
by 100% there will be a 99.1% of change in GDP, in same
direction.

FINDINGS CONTD…

The Bank deposits and GDP of India has high degree of correlation as its
value is 1, which means that if there will be a certain percentage of
change in deposits, there will be same percentage change in GDP ,in
same direction.

When ANOVA Test was applied to the GDP and Bank Deposits of India,
the sum of squares in Regression model was having very less residual
value.

The Regression analysis of the GDP and Bank Deposits with the help of
ANOVA test, the sum of squares in Regression model was having very
less residual value.


RECOMMENDATIONS

 On the basis of the data presented in the
interpretation, regarding correlation between GDP
and GDS, we can recommend that to strengthen the
economy and GDP of India, they should increase their
savings.
 According to the data analyzed regarding correlation
between GDP and GDS, we can recommend that to
strengthen the economy and GDP of China, they
should increase their investments and savings.
 comes your footer  Page 17
Here

RECOMMENDATIONS CONTD…

While comparing India and China, we find that china has
more GDP and GDS as compared to India and also bank
deposits of China are more as compared to India.

On the basis of the data given in the interpretation,
regarding correlation between the GDP and deposits, we can
recommend that India and China both have to increase their
portion of deposits so that further GDP for both the countries
can be on higher side and both the countries should focus
more on GDS so that Economy can grow and develop.


Comparative Study of India-China
Year 2008 2009 2010 2011 2012
GDP(India) 1.24 1.21 1.38 1.72 1.84
GDP(China) 3.49 4.52 4.99 5.87 7.29
GDS %GDP(India) 30 31 32 31
GDS%GDP(China) 52 53 52 53
Deposits(India) 0.65 1.8
Deposits(China) 1.13 4.1
Parameter India China

Population(2012) 1.22 Billion 1.34 Billion

Geographic Area 3.2 Million Sq Km 9.6 Million Sq Km

Inflation Rate (2013) 6.84 % 3.20 %

GDP(PPP) (2012) 4.7 trillion $ 12.38 trillion $

Literacy Rate 83.04 %(2012) 92.2%(2007)

LIMITATIONS OF THE PROJECT

•The main focus in this research would be to pursue a cross-
sectional study bearing in mind the time constraint and also
subject to the fact that the banking industry will not reveal
the data for security purpose to undergone a longitudinal
study.

•This research would be carried out using secondary data
which is already available through various sources and
would be dealt in detail in further sections. Reliability of the
findings could be guaranteed by the mere fact that the
participant error or biased views did not take place as
secondary data is used.


CONCLUSION

China is having a definite edge over India if the present position of these two
countries in global economy is concerned.

The government machinery of the country, to a great extent, is found to be
responsible for the same. India looks a struggler yet, the fundamentals of its
economy and future growth projection makes it a dark horse in the global
scenario.

Indian in order to ensure that it is not lagging behind its counterparts, will
have to reverse the trend by investing more in R&D.

Improving education rate and standards in the country; curtailing adverse
balance of trade; making our laws especially labour laws simple and straight
forward, making our financial markets more efficient and so on.


Impact of banking sector on economy of India with relation to china

More Related Content

What's hot (20)

Similar to Impact of banking sector on economy of India with relation to china (20)

Recently uploaded (20)

Impact of banking sector on economy of India with relation to china

Editor's Notes