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.

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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.

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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 %

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INTRODUCTION

The Reserve Bank of India, the nations 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.
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China Banking System

The People's Bank of China (PBOC) is Chinas 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 stateowned 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. Here comes your footer Page 6

Relation between Savings and Economic Growth

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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 nonperforming. 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.
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PORTERS FIVE FORCES MODEL FOR BANKING SECTOR

Power of Buyers: Customers 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 suppliers bargaining power is low because banks have to meet many regulatory criteria made by RBI.

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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 NBFCs. Threat of new Entrants: Banking regulations require the approval of the regulator RBI before setting up a new 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.

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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.

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ANALYSIS

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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.
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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.
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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.
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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.

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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.
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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.

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Comparative Study of India-China

Year GDP(India) GDP(China) GDS %GDP(India) Deposits(India) Deposits(China) Parameter Population(2012) India 1.22 Billion 2008 1.24 3.49 30 0.65 1.13 China 1.34 Billion 2009 2010 1.21 4.52 31 1.38 4.99 32 2011 2012 1.72 5.87 31 1.84 7.29

GDS%GDP(China) 52

53

52

53
1.8 4.1

Geographic Area
Inflation Rate (2013) GDP(PPP) (2012)

3.2 Million Sq Km
6.84 % 4.7 trillion $

9.6 Million Sq Km
3.20 % 12.38 trillion $

Literacy Rate

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83.04 %(2012)

92.2%(2007)

LIMITATIONS OF THE PROJECT

The main focus in this research would be to pursue a crosssectional 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.

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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.

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