CHALLENGES FACED CHALLENGES FACED BY BANKING SECTOR IN INDIABY BANKING SECTOR IN INDIA

Presentation ByPresentation By

K. RAJASEKARANK. RAJASEKARANEx-Dy. Director (Academics)Ex-Dy. Director (Academics)

Ahmedabad Management AssociationAhmedabad Management Association

(Former AGM, Global Trust Bank Ltd and(Former AGM, Global Trust Bank Ltd and

State Bank of Travancore – Subsidiary of SBI)State Bank of Travancore – Subsidiary of SBI)

CHALLENGES FACED BY BANKING SECTORCHALLENGES FACED BY BANKING SECTOR

IMPACT OF FINANCIAL DISINTERMEDIATIONIMPACT OF FINANCIAL DISINTERMEDIATIONCOMPETITION FROM OTHER INVESTMENT COMPETITION FROM OTHER INVESTMENT VEHICLESVEHICLESCHANGING CAPITAL ADEQUACY NORMS (BASEL II)CHANGING CAPITAL ADEQUACY NORMS (BASEL II)EXPOSURE TO ENHANCED RISKS IN THE SYSTEMEXPOSURE TO ENHANCED RISKS IN THE SYSTEMEFFECTIVE USE OF TECHNOLOGYEFFECTIVE USE OF TECHNOLOGYINCREASING CUSTOMER EXPECTATIONSINCREASING CUSTOMER EXPECTATIONSFOCUS ON RETAIL BANKINGFOCUS ON RETAIL BANKINGPROBLEMS POSED BY N. P. APROBLEMS POSED BY N. P. ANEED TO INCREASE NON INTEREST INCOMENEED TO INCREASE NON INTEREST INCOMECONSOLIDATION (MERGERS / AMALGAMATIONS)CONSOLIDATION (MERGERS / AMALGAMATIONS)

1. IMPACT OF FINANCIAL DISINTERMEDIATION1. IMPACT OF FINANCIAL DISINTERMEDIATION

CORPORATES RAISING FINANCE FROM CORPORATES RAISING FINANCE FROM CAPITAL MARKET THRO’ SHARES / BONDSCAPITAL MARKET THRO’ SHARES / BONDS

INVESTORS DEPOLYING THEIR FUNDS IN INVESTORS DEPOLYING THEIR FUNDS IN EQUITY SHARES, BONDS, MUTUAL FUNDSEQUITY SHARES, BONDS, MUTUAL FUNDS

CHANGING ROLE OF BANKS INTO FULL CHANGING ROLE OF BANKS INTO FULL FLEDGED FINANCIAL SUPERMARKETFLEDGED FINANCIAL SUPERMARKET

NEED TO BUILD CAPACITY TO COPE WITH NEED TO BUILD CAPACITY TO COPE WITH THE VOLUME OF OPERATIONSTHE VOLUME OF OPERATIONS

2. COMPETITION FROM OTHER INVESTMENT 2. COMPETITION FROM OTHER INVESTMENT VEHICLESVEHICLES

PSU BANKS FACE THREAT FROM PVT BANKSPSU BANKS FACE THREAT FROM PVT BANKS

BANKING SECTOR AS A WHOLE FACE BANKING SECTOR AS A WHOLE FACE COMPETITION FROM: COMPETITION FROM:

MUTUAL FUNDS / CAPITAL MARKETMUTUAL FUNDS / CAPITAL MARKET

INSURANCE COMPANIESINSURANCE COMPANIES

POST OFFICES / GOVT. TREASURYPOST OFFICES / GOVT. TREASURY

BANKS CONTINUE TO ATTRACT FUNDS BANKS CONTINUE TO ATTRACT FUNDS BECAUSE OF PERCEIVED SAFETY, BECAUSE OF PERCEIVED SAFETY, CONVENIENCE AND FLEXIBILITY.CONVENIENCE AND FLEXIBILITY.

3. CHANGING CAPITAL ADEQUACY NORMS3. CHANGING CAPITAL ADEQUACY NORMS

GLOBALISATION DEMANDS BANKS TO HAVE GLOBALISATION DEMANDS BANKS TO HAVE MINIMUM CAPITAL AS PER INTERNATIONAL MINIMUM CAPITAL AS PER INTERNATIONAL NORMSNORMS

INCREASING VOLUME OF BUSINESS AND INCREASING VOLUME OF BUSINESS AND ENHANCED RISKS ENTAIL HIGHER CAPITALENHANCED RISKS ENTAIL HIGHER CAPITAL

ISSUES RELATING TO NATURE AND COST ISSUES RELATING TO NATURE AND COST OF CAPITAL FUNDSOF CAPITAL FUNDS

COMPLYING WITH BASEL II NORMSCOMPLYING WITH BASEL II NORMS

4. EXPOSURE TO ENHANCED RISKS 4. EXPOSURE TO ENHANCED RISKS

ACCENTUATED INTEREST RATE RISK ACCENTUATED INTEREST RATE RISK CONSEQUENT ON DEREGULATIONCONSEQUENT ON DEREGULATION

INCREASING LIQUIDITY RISK DUE TO INCREASING LIQUIDITY RISK DUE TO CHANGING MATURITY PROFILECHANGING MATURITY PROFILE

NEED FOR REGULAR A. L. MNEED FOR REGULAR A. L. M

ENHANCED AND VARIED CREDIT RISK ENHANCED AND VARIED CREDIT RISK FOLLOWING GLOBALISATIONFOLLOWING GLOBALISATION

COMPLEXITY OF OPERATIONAL RISK AS A COMPLEXITY OF OPERATIONAL RISK AS A SEQUEL TO INCREASING VOLUMESEQUEL TO INCREASING VOLUME

5. EFFECTIVE USE OF TECHNOLOGY5. EFFECTIVE USE OF TECHNOLOGY

USE OF COST EFFECTIVE TECHNOLOGY TO USE OF COST EFFECTIVE TECHNOLOGY TO PROVIDE ATM & NET BANKING FACILITYPROVIDE ATM & NET BANKING FACILITY

TECHNOLOGY TO BE FULLY GEARED TO TECHNOLOGY TO BE FULLY GEARED TO SUPPORT ANYWHERE / ANYTIME BANKINGSUPPORT ANYWHERE / ANYTIME BANKING

PROPER USE OF TECHNOLOGY TO PROPER USE OF TECHNOLOGY TO EXPEDITE BACK OFFICE TRANSACTIONSEXPEDITE BACK OFFICE TRANSACTIONS

MAKING TECHNOLGY WORK TOWARDS MAKING TECHNOLGY WORK TOWARDS HELPING TOP LEVEL DECISION MAKINGHELPING TOP LEVEL DECISION MAKING

6. INCREASING CUSTOMER EXPECTATIONS6. INCREASING CUSTOMER EXPECTATIONS

CUSTOMER EXPECTS FLEXIBLE CUSTOMER EXPECTS FLEXIBLE DISTRIBUTION CHANNELSDISTRIBUTION CHANNELS

ATM / NET BANKING / PHONE / MOBILE /HOMEATM / NET BANKING / PHONE / MOBILE /HOME

DEMAND FOR EXTENDED BANKING HOURSDEMAND FOR EXTENDED BANKING HOURS

LOWEST RESPONSE TIMELOWEST RESPONSE TIME

COMPETITIVE PRICING BASED ON QUALITYCOMPETITIVE PRICING BASED ON QUALITY

ALL FINANCIAL SERVICES UNDER ONE ROOFALL FINANCIAL SERVICES UNDER ONE ROOF

PROPER CUSTOMER ORIENTATIONPROPER CUSTOMER ORIENTATION

7. FOCUS ON RETAIL BANKING7. FOCUS ON RETAIL BANKING

DWINDLING CORPORATE BANKING BUSINESS DWINDLING CORPORATE BANKING BUSINESS NECESSITATES FORAY INTO RETAIL.NECESSITATES FORAY INTO RETAIL.RETAIL DEPOSITS TEND TO BE MORE STABLE RETAIL DEPOSITS TEND TO BE MORE STABLE AND DIVERSIFEDAND DIVERSIFEDRETAIL ASSETS YIELD BETTER RETURN RETAIL ASSETS YIELD BETTER RETURN LOW INCIDENCE OF N.P.A.LOW INCIDENCE OF N.P.A.TREMENDOUS SCOPE FOR EXPANSIONTREMENDOUS SCOPE FOR EXPANSIONPROPER MONITORING REQUIRED AS IT IS PROPER MONITORING REQUIRED AS IT IS VOLUME DRIVENVOLUME DRIVEN

8. PROBLMES POSED BY N. P. A8. PROBLMES POSED BY N. P. A

BANKS TO CONFORM TO NPA BANKS TO CONFORM TO NPA CLASSIFICATION AND PROVISIONING CLASSIFICATION AND PROVISIONING NORMS STIPULATED BY RBINORMS STIPULATED BY RBINPA LEVEL TO BE REDUCED DRASTICALLY NPA LEVEL TO BE REDUCED DRASTICALLY LEST IT AFFECTS INCOME AND PROFITLEST IT AFFECTS INCOME AND PROFITBOTH LEGAL AND OUT OF COURT BOTH LEGAL AND OUT OF COURT SETTLEMENTS TO BE USED FOR SETTLEMENTS TO BE USED FOR RECOVERYRECOVERYCREDIT APPRAISAL AND FOLLOW UP TO BE CREDIT APPRAISAL AND FOLLOW UP TO BE STRENGTHENED TO PREVENT NPA STRENGTHENED TO PREVENT NPA

9. NEED TO INCREASE NON INTEREST 9. NEED TO INCREASE NON INTEREST INCOMEINCOME

THINNING OF SPREAD NEEDS TO BE THINNING OF SPREAD NEEDS TO BE COMPENSATED BY OTHER INCOMECOMPENSATED BY OTHER INCOME

WITH PROSPECT OF LOW TREASURY WITH PROSPECT OF LOW TREASURY PROFIT BANKS TO FOCUS MORE ON FEE PROFIT BANKS TO FOCUS MORE ON FEE BASED INCOME OPPORTUNITESBASED INCOME OPPORTUNITES

CROSS SELLING OF MUTUAL FUND AND CROSS SELLING OF MUTUAL FUND AND INSURANCE PRODUCTSINSURANCE PRODUCTS

INCREASING POTENTIAL FOR DEMAT, INCREASING POTENTIAL FOR DEMAT, UTILITY BILL PAYMENTS AND FOREXUTILITY BILL PAYMENTS AND FOREX

10. CONSOLIDATION (MERGERS / 10. CONSOLIDATION (MERGERS / AMALGAMATIONS )AMALGAMATIONS )

MERGERS MAY BE RESORTED MERGERS MAY BE RESORTED

TO ACHIEVE CRITICAL SIZETO ACHIEVE CRITICAL SIZE

TO EXPAND PRODUCT PORTFOLIOTO EXPAND PRODUCT PORTFOLIO

TO EXPAND GEOGRAPHICAL AREATO EXPAND GEOGRAPHICAL AREA

TO ACQUIRE SYNERGY BY PICKING TO ACQUIRE SYNERGY BY PICKING UP COMPLEMENTAL BUSINESSUP COMPLEMENTAL BUSINESS

TO WARD OFF TAKE OVERSTO WARD OFF TAKE OVERS

11. MANAGING HUMAN RESOURCES11. MANAGING HUMAN RESOURCES

RECRUITMENT OF CANDIDATES WITH RECRUITMENT OF CANDIDATES WITH PROPER CUSTOMER ORIENTATIONPROPER CUSTOMER ORIENTATION

MANAGING KNOWLEDGE WORKERSMANAGING KNOWLEDGE WORKERS

RETAINING TALENT WITH MOTIVATIONRETAINING TALENT WITH MOTIVATION

SKILL DEVELOPMENT THRO TRAININGSKILL DEVELOPMENT THRO TRAINING

OUTSOURCING OF ROUTINE WORKOUTSOURCING OF ROUTINE WORK

PROPER REWARD SYSTEMSPROPER REWARD SYSTEMS

THANK YOU !THANK YOU !

K. RAJASEKARANK. RAJASEKARAN