Financial liberalization is a most controversial subject of Indian politics and financial sector. "Financial Liberalization is a process in which allocation resources is determined by market forces rather than the state"-(Kavaljit singh 2007).Foreign banks have been operating in India last 140 year. Since 1991, the Government of India cleared the entry of foreign bank . Before 1991, 27 public sector banks were controlled about 90%of all deposit, asset and Credit, in India. In 1994 brought an amendment on Banking Act it allowed the banks to raise their private equity capital up to 49 %of paid up capital, foreign banks have brought significant changes and impact on the Indian banking industry, it introduced Information technology and tried to provide with good services to their customers. But foreign bank side lined the farmers and agriculture sectors, the burden of credit left on the domestic bank it caused immense problem and hard ships to the country as whole. During the 1990 India has confronted financial crisis, the public sector deficit was 10% of Growth Domestic Product (GDP), current account deficit was 3% of GDP, inflation rate was 10% and growing foreign debt as well, apart from political uncertainty also lead the country was in fragile situation. Iraqi invasion of Kuwait created oil price boom.(Sayuri shirai 2010)
POSITIVE IMPACT OF FOREIGN BANK ENTRY
After the amendment on Indian banking act, country witnessed capital inflow to the financial market foreign banks targeted only high returns, it levied high interest on loan, even though big firms have opted foreign banks rather than domestic banks. Information technology booming has helped the foreign banks to attract customers at once, they provided fast and prompt service, in fact Indian corporate industry was fed up with the domestic banking system due to lack of expertise, corruption and stringent condition for availing loan .Foreign bank has adopted new technology especially core banking and e -banking systems are brought qualitative standard to banking industry. So domestic banks were tried to compete with foreign banks for their existence. Advent of foreign banks in to India created enormous job opportunities , it was big sigh for the Indian un employed youth, especially well trained urban unemployed got better opportunities ,same time foreign banks used the potential and skill of the unemployed with lower salaries Entry of the foreign bank created healthy competition between the domestic banks, foreign bank adopted "follow -the- customer " hypothesis (Khoury 1980, Chi, Krishnan and Night 1986) it is one of the positive outcomes of foreign bank entry, it helped the customers get good services and product from the market , Domestic banks are forced to adapt new Customer relation method due to the strong competition from foreign bank.
ADVERSE IMPACT OF FOREIGN BANK ENTRY
To the contrary, liberalization of banking industry caused much hardship and irreparable lose to farmers and SMEs of the India; agriculture is the back bone of the Indian Economic Growth. In fact, after the liberalization of banking sector, "in the total number of the bank branches has declined, particularly in rural area (from 32939 in March 1997 to 32227 in 2004" (kavaljit singh 2009). India -EU Free Trade Agreement (FTA) is futile exercise as far India is concern, EU based banks were not ready to open branch in rural areas. Some of them have been working last 140 years. In addition India has failed to invest in foreign countries FTA agreement helped the liberalization forces only.In 2009, EU invested 3.2 billion Euro in Indian,same time India has invested in EU only 0.4 billion Euro (European Commission Trade 2009). Foreign banks have concentrated only on metros and urban areas, they side lined hue and cry of the farmers. Foreign banks denied credit to the farmers". the rural credit went down 15.7% in 1992 to 11.8% in 2002" (kavaljit singh 2008),it easily assimilate that advent of foreign bank has not enhanced the grew rural credit. SME is one of the badly affected areas due to the foreign bank entry, it is the second largest employer of the country, in post liberalization period SME has declined 15% to 11% in 2003. It is the second largest exporter after the agriculture sector. Foreign banks are declined to grant credit to the SMEs ,it badly affected the economic growth of India .On other hand, foreign bank has interested to give credit for the affluent things such as consumer items like Car and finance to the flats .Getting a car loan is easy but getting agricultural loan from foreign bank is too difficult. Foreign bank preferred affluent customers and profitable firms, eventually agricultural sector suffered huge loss.
FOREIGN BANK PRESENCE THREATS TO THE DOMESTIC BANKING INDUSTRY
Before advent of foreign banks to India, public sector banks played a major role, 90% of the banking business dealt by public sector banks. Domestic bank charged low interest on government bonds and directed to concessional lending to the farmers and poor. Interest rate was administrated by the government and lack of competition was prevailed among the banking industry. Entry of the foreign bank brought far reaching consequences to the industry. Excessive credit, high interest ,intense competition have made threats to domestic banking industry ,it forced to do more business for the under privileged group, foreign banks concentrated on urban areas, there by domestic banking business badly affected . staff of the foreign banks are youth and familiar with the information technology ,most of the public sector banks employees were aged not familiar with computer, more over foreign bank provides efficient services with promptly and due care but public sector employees not shown the willingness to deliver the service apt and due diligence ,eventually corporate industry ,firms and affluent people rushed to the foreign banks ,it is ready to provide loan to profitable firms and elite people. Subsequently the domestic banks were strived for existence the burden of agriculture and SMEs credit dealt by domestic banks. In 2008- 2009 budget government of India waived 6000 core INR for agricultural credit this burden also comes on the public sector banks. Nevertheless, Indian domestic banking industry has overcome the crisis, financial crisis and global meltdown not seriously affected the Indian banking industry, it is only because of the stringent supervision of the central bank called Reserve Bank of India (RBI)
CONCLUSION
To conclude, liberalization of banking industry in India brought a lot of positive changes, especially it helped to transform the domestic banks into international standard, profitable firms and elite people are the beneficiaries of foreign bank entry, it badly affected the agriculture sector and SMEs. Regulated Indian banking industry was destabilised by the advent foreign banks and in intense competition decreased the profit of the banking business.
