Explain the defects of Indian Banking System and give suggestions to improve the working of Indian banks.

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Defects of Indian Banking System
Indian banking system has achieved a remarkable all round growth during the last two decades but there remain some inherent weakness and shortcomings and efforts should be made to overcome them. Some of the weaker points of Indian banking system are as follows:
1. Banks are facing bureaucratization of the banking system.
2. Banks in India have low profitability.
3. Despite compulsory audit of banks, many banks indulge in window-dressing of their balance sheets. They artificially, increase their deposits in the last week of the fiscal year.
4. In Indian banking system, many banks are operating as sick units.
5. Ineffective and inefficient organisational structure.
6. Lack of coordination.
7. Many banks indulge or participating in share speculation, thereby they are misusing the public deposits.
8. Many banks resort to large-scale irregularities in operating their accounts. Often, bad accounts of one bank take over to the other bank without proper scrutiny.
9. Most of the rural branches are running at a loss because of high overheads and prevalence of the barter system in most parts of rural India.
10. Some banks favouring certain companies in advancing loans. Such loans turn into bad debts, thereby weakening the financial position of the concerned banks.
11. The capital base of Indian banks is very low and also has not uniformity.
12. The corruption among bank employees is also a problem in the banking system.
13. The Indian banking system suffers from a dual control of the Government and Reserve Bank. It is over-regulated and over-administered.
14. The non-performing assets of Indian commercial banks have been growing rapidly.
15. The quality of loan portfolios of a number of banks is very bad. Often, they advance loans under extraneous (or political) pressures.

Suggestions to improve the working of Indian Banks

Suggestions to improve the working of Indian Banks are given below:
1. An Assets Reconstruction Fund (ARF) should be established to take over from banks and financial institutions a portion of their bad and doubtful debts at a discount.
2. Cash Reserve Ratio (CRR) should be progressively reduced.
3. Computerisation of bank operations needs to be stepped up.
4. Directed credit programmes should be phased out.
5. Duality of control over the banking system between the RBI and the Banking Division of the Ministry of Finance should end, and the RBI should be the primary agency for regulation of the banking system.
6. Encouraging the banks to avail facilities from the banking system, through RBI.
7. For better efficiency and profitability banks should adopt uniform accounting practices.
8. Foreign banks should be permitted to open offices in India as branches or as subsidiaries.
9. Foreign banks should be subject to the same requirements as applicable to Indian banks.
10. Foreign operations of Indian banks should be rationalised.
11. Government should set up Special Tribunals to speed up the process of recovery of loans.
12. Human resource development is another challenge. There is a gap in middle-level management, which has to be addressed through lateral hiring, better training etc.
13. Individual banks should be permitted to recruit officers.
14. Inspection by supervisory staff should be based on the internal audit and internal inspection reports.
15. One or more rural banking subsidiaries by each public sector bank should be set up to take over all its rural branches.
16. RRBs should be allowed to engage in all types of banking business.
17. Should appoint the chief executives officer in the banks and should be extended their tenure as per requirements.
18. The priority sector should be redefined.
19. There should be deregulation of interest rate so as to reflect emerging market trends.
20. These banks should be linked with commercial banks on the basis of certain understanding in the respect of interest, charged from the borrowers, the verification of the same by the commercial banks and the passing of the concessions to the priority sectors etc.
21. Use of technology must be increased to make banking easier and improve an efficiency of the, banks.

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