Changing Scenario of Indian Banking Sector

8/9/2019 Changing Scenario of Indian Banking Sector

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Changing scenario of Indian banking

sector

1Prof.RupeshR.Dahake, 2Prof.Sachin S. Panchabhai, 3Prof.Pravin Kataria

1st ! 3rd

"uthorAssistant Professor (MBA Department)Aliation: -DattaMeghe Institute of Engineering Technology !esearch" #a$angi%ar&ha

Email: -rupesh&aha'e*+gmail,com

Moile no: - ./0*...*

2nd"uthor Assistant Professor (MBA Department)

Aliation: -Dr, Ame&'ar Institute of Management #tu&ies !esearch" 1agpur,

Email: -panchahai2ss+re&i3mail,com

Moile no: - .45/4665

"bstractIn&ian an'ing in&ustry is one of the most important pillar in the In&ian economy"

an'ing sector is a ac'one of economy of any country, De7elopment of an'ing

sector al$ays lea&s &e7elopment of country $e can 8u&ge if this sector gro$

positi7ely it means economy gro$ing, That $hy e7eryone say the In&ian an'ing

sector" eing the arometer of the economy" is re9ecti7e of the macro-economic

7ariales, %hile the In&ian economy is yet to catch strength" the In&ian an'ing

system continues to &eal $ith impro7ement in asset uality" e;ecution of pru&ent

ris' management practices an& capital a&euacy" impro7ing customer ser7ices

e;perience an& e;pansion of an'ing acti7ities in rural area, In this paper an

attempt has een ma&e to stu&y changing scenario of In&ian an'ing sector an&

also stu&y opportunities an& challenges ahea& of In&ian an'ing sector,

Ke#ords$ %onperfor&ing assets, Risk &anage&ent, 'nancia( inc(usion,

Rapo Rate, &onetar po(ic

I%)R*D+C)I*%$

To&ay $orl& economy health is not $ell" many ig nation


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institutions &ue to insol7ency an& 1PA etc, &o to this crisis entire $orl& face heat of

this in the form of hea7y 8o cutting" lo$ in7estment in &e7eloping nations etc,

=nancial sector play 7ital role to shape country economy, 1o$ many European

nations economic con&ition not $ell, #ince the ?ehman Brothers &eclare&

an'ruptcy in 566" inci&ences" e7ery no$ then" ha7e sustaine& the concerns

o7er gloal =nancial staility, %hile most emerging mar'et economies (EMEs)"

inclu&ing In&ia" ha7e reco7ere& from gloal =nancial crisis" a&7ance& countries

continue to e plague& $ith gro$th =gures loo'ing &ismal, Euro @one crisis seems to

e sprea&ing across the E> countries follo$ing ripple e3ect" political turmoil persists

in Mi&&le East 1orth African (ME1A) region" economic stagnation in ># augurs no

imminent respite from the $orsening gloal situation, In&ian an's" ho$e7er" not

only emerge& unscathe& from the gloal =nancial crisis ut continue& to manage

gro$th $ith resilience &uring 5606-00, 7er the past couple of years" the In&ian

an'ing sector has &isplaye& a high le7el of resiliency in the face of high &omestic

in9ation" rupee &epreciation an& =scal uncertainty in the ># an& Europe, In or&er to

stimulate the economy an& support the gro$th of an'ing sector" the !eser7e Ban'

of In&ia (!BI) a&opte& se7ere policy measures such as increasing the 'ey monetary

policy rates such as repo an& re7erse repo 0* times since April 566. to ct 5600

an& tightening pro7isioning reuirements, Ami&st this economic scenario" the 'ey

challenge for the In&ian an'ing system continues in impro7ing their operational

eciency an& implement pru&ent ris' management practices, #ome of the 'ey

tren&s e;pecte& to emerge in the near future are as un&er-Economic slo$&o$n

li'ely to impact the &eman& for cre&it, To&ay in In&ia !eser7e Ban' of In&ia enough

to han&le this type of crises $ithin the country, Primarily eing an agrarian

economy" the lierali@ation in In&ia sa$ resurgence of #er7ices sector on the fast

lane, Post lierali@ation an& gloali@ation of the In&ian economy" In&ian an'ing

sector has un&ergone para&igm shift in scope" content" structure" functions an&

go7ernance, Their 7ery character" composition" contours an& chemistry ha7e

change&, An&" the process continues,

The a&7ent of information an& communication technology has further rought aout

ra&ical an& perceptile change in the operational en7ironment of the an's,

Presently" an'ing sector is face& $ith multiple an& concurrent challenges"

increase& competition" rising customer e;pectations an& &iminishing customer

loyalty, %hat est the an's can &oC In this fast changing an& comple; scenario"

possily" the only solution seems for each an' to gi7e the customers optimum


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len& of technology an& personali@e& ser7ices in the most con7enient manner at

lo$ cost,

IS)*RIC"- "CK/R*+%D$0

In In&ia" the mo&ern an'ing system $as initiate& $ith the estalishment of the

Presi&ency Ban' of Bengal in 06*" an& the Presi&ency an' of Ma&ras in

046,o$e7er" the post-in&epen&ence perio& $itnesse& the massi7e gro$th in the

In&ian an'ing sector, !eser7e Ban' of In&ia" $as nationali@e& on anuary 0" 0.4.

un&er the terms of the !eser7e Ban' of In&ia Act" 0.4, In 0.4." the Ban'ing

!egulation Act $as enacte& $hich empo$ere& the !eser7e Ban' of In&ia to

regulari@e" control an& inspect the an's in In&ia, The Ban'ing !egulation Act also

pro7i&e& the numer of ne$ an's or ranches of an e;isting an' $oul& e

opene& $ith a license from the !eser7e Ban' of In&ia, Before 1ationali@ation of

Ban's" &espite control an& regulation y !eser7e Ban' of In&ia" an's in In&ia

e;cept the #tate Ban' of In&ia continue& to e o$ne& an& operate& y pri7ate

personnel, But y that time the In&ian Ban'ing In&ustry ha& gro$n in si@e an&

employe& a large numer of people thus ecame an important tool for the

&e7elopment of In&ian economy, In or&er to ensure more euitale an& purposeful

&istriution of cre&it on uly 0." 0.*. the Fo7ernment of In&ia issue& an or&inance

an& nationali@e& 04 largest commercial Ban's, In April 0.6 si; more commercial

an's $ere nationali@e&, %ith nationali@ation of these an's the Fo7ernment of

In&ia controlle& an o7er$helming ma8ority of the an'ing usiness in In&ia,

During 0..6s In&ia starte& opening up $ith changes in the economic policies an&

intro&uction of ne$ institutional mechanisms of economic lierali@ation an& =nancial

sector reforms, The go7ernment" initially license& small numer of pri7ate an's

$hich increase& o7er the years, 1o$" the ne;t stage for the In&ian an'ing has

een set up $ith the propose& rela;ation in the norms for Goreign Direct

In7estment" $here all Goreign In7estors in an's may e gi7en 7oting rights $hich

coul& e;cee& the present cap of 06H" at present it has gone up to 4H $ith some

restrictions,


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In the e7olution of this strategic in&ustry spanning o7er t$o centuries"

immense &e7elopments ha7e een ma&e in terms of the regulations

go7erning it" the o$nership structure" pro&ucts an& ser7ices o3ere& an& the


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technology &eploye&, The entire e7olution can e classi=e& into four &istinct

phases,

0, Phase I- Pre-1ationali@ation Phase (prior to 0.)

5, Phase II- Era of 1ationali@ation an& Jonsoli&ation (0.-0..6)

/, Phase III- Intro&uction of In&ian Ginancial Ban'ing #ector !eforms an&

Partial ?ierali@ations (0..6-5664)

4, Phase IK- Perio& of Increase& ?ierali@ations (5664 on$ar&s)

-iterature Revie#$0

" co&prehensive stud b Dr. Krishna ". /oa( ! ia oshi the stated 7er the

years" it has een oser7e& that clou&s of trepi&ation an& &rops of gro$th are t$o important

phenomena of mar'et" $hich freuently changes in &i3erent sets of con&itions, The pre an&


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post lierali@ation era has $itnesse& 7arious en7ironmental changes $hich &irectly a3ects

the aforesai& phenomena, It is e7i&ent that post lierali@ation era has sprea& ne$ colors of

gro$th in In&ia" ut simultaneously it has also pose& some challenges.4Indian anking

Industr$ Cha((enges "nd *pportunities Internationa( ourna( of usiness Research and

5anage&ent 4IR56, o(u&e 436 $ Issue 416 $ 27126

Prof.Shi(pi Singh attempte& to =n& out organi@ations all o7er are rushing to

implement the latest i&eas on management" sometimes to the point of o7eruse, The

ma8or challenge no$ for an's as $ell as any ot her organisation is therefore ho$ to

&e7elop their social architecture that generates intellectual capital as the

uintessential &ri7er of change, De7eloping the in&i7i&ual or human capacity is an

integral element of uil&ing capacity an&" in fact" capacity uil&ing initiati7es are

no$ increasingly ecoming almost an in&e; of institutional uality, Ta'ing the

an'ing in&ustry to the heights of e;cellence" especially in the face of the a

forehea& &etaile& emerging realities" $ill reuire a comination of ne$

technologies" etter processes of cre&it an& ris' appraisal" treasury management"

pro&uct &i7ersi=cation" internal control an& e;ternal regulations an&" not the least"

human resources, (Internationa( ourna( of"pp(ication or Innovation in

8ngineering ! 5anage&ent 4I"I856 o(u&e 2, Issue 1 anuar 2713 ISS%

2319 0:;:


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e7er efore, This calls for inno7ati7e solutions, Ban's may ha7e to go for moile

an'ing ser7ices for a cluster of 7illages, Alternati7ely" technological institutions

ha7e to come out $ith lo$ cost" self ser7ice solutions ATMs, The go7ernment an&

the !BI shoul& acti7ely support such research e3orts, 4"I%" %")I*%"-

5*%)-= R8>8R88D *+R%"- *> R8"S8"RC I% C*558RC8 !

5"%"/858%) *-+58 %*.2 ISS+8 %*.1ISS% 22*R8 )8 I%DI"% "%KI%/ S8C)*R

The main challenges face& y an's encompass oth the pre7ailing economic an&

usiness en7ironment as $ell as e7ol7ing &e7elopments of this in&ustry, These ha7e

een summari@e& elo$

Deceleration in economic gro$th impacting an'ing sector gro$th, Nuite

clearly this is one factor $hich a3ects the gro$th an& prospects of this sector,

The fact that the In&ian economy has slo$e& &o$n in the last three years is

signi=cant here,

Maintaining asset uality in the face of gro$ing 1PAs an& restructuring of

a&7ances, There is a clear lin' $ith the o7erall state of the economy,


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Augmenting capital an& maintaining pru&ential capital a&euacy in 7ie$ of

the implementation of Basel III, Preser7e an& augment pro=taility of an's in a stresse& en7ironment, Ban's

are $itnessing pressure on margins on account of capital reuirement"

pro7isioning" regulation" liui&ity" 7olatile interest rates etc,

Achie7ing &esire& cre&it gro$th in a $ea' economy,

Implementation of Ginancial Inclusion DBT (Direct Bene=t Transfer), As the!BI has een reiterating the nee& for focusing on =nancial inclusion this

factor has ecome a challenge as it has to e a&&resse& $hile 'eeping an

eye on capital" uality of assets an& pro=taility,

Increase& competition from oth $ithin the an'ing sector $ith 7arious an's

ecoming aggressi7e in the e;isting space as $ell as potential competition

from ne$ entrants,

A&opting an& a&apting to technological changes inno7ation to meet

regulatory reuirements as $ell as to tap alternati7e channels in an'ing

Dealing $ith technology relate& frau&s an& impro7ing ris' management

systems of an's Impro7ing uality of human resources for ecient $or'ing of an's in 7ie$ of

the latest technological &e7elopments,

5easures$0

#tringent norms pertaining to 1PAs an& restructure& assets, The le7el of 1PAs

has gone up sharply this year $hich ecomes more $orrisome $hen the

restructure& assets are also factore& in,

Target Jonsoli&ationmergers an& entry of ne$ players, This $oul& in7ol7e:

Jon7ersion of some uran co-operati7e an's into full-9e&ge& commercial

an's"

#eparate licenses for nichespeci=c an'ing operationsfunctions such as

$ealth management" in7estment an'ing" $holesale an'ing or retail

an'ing, This has een spo'en aout in some &etail y a special Jommittee

set up y !BI on =nancial inclusion,

!eforms in Jorporate &et mar'et" Fo7ernment Det Mar'et Money

Mar'et, Acti7ating corporate fun&ing through alternati7e channels of money

mar'et an& on&s y intro&ucing enchmar' sprea&s an& transparency in the

mar'ets, (The !BI has alrea&y reintro&uce& I!Gs an& also has put up a paper

on =nancial enchmar's),

Gocus on asset O liaility management for an's,


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Increase& >sage of Technology in Ban'ing, ?e7eraging of technical

&e7elopments on 7arious an'ing acti7ities

Gocus on Ginancial InclusionDeepening

Intro&uce measures for the remo7al of structural ottlenec's on cre&it

&eli7ery an& free pricing of =nancial assets

Bring aout transparency an& impro7ement in clearing an& settlement

practices

!eforms aime& at creating liui&ity an& &epth for ecient price &isco7ery of

all an'ing pro&ucts

I&pact of 5easures$

1orms on 1PAs $oul& impro7e uality of assets reco7ery" liui&ity an& the

o7erall alance sheets of an's,

Jonsoli&ation of an's an& ne$ players $oul& result in competition an&

conseuently in inno7ation an& eciencypro&ucti7ity of an's, It $oul& also

ring aout economies of scale an& economics of scope for an's,

-Jon7ersion of some uran cooperati7e an's into full-9e&ge& commercial

an's $ill help Ban's to participate in main stream line of usiness on lo$er

ris',

-Increase& usage of technology coul& lea& to technological up gra&ation an&more e-pro&ucts $oul& e &esigne&, Technology $ill help sustain an& scale

usiness,

-Ginancial &eepening $oul& ma'e an'ing more inclusi7e" impro7e

geographical co7erage" re&uce regional imalances an& cre&it to the

unorgani@e& sector $oul& see an increase,

)en 5aor )rends that #i(( Shape the Indian anking Industr

1. 5ortgages to cross Rs :7 tri((ion b 2727$

Mortgages typify the retail an'ing opportunity in an economy, The total

mortgages in the oo's of the an's ha7e gro$n from 0, percent to 06

percent of the total an' a&7ances" in a perio& of ten years, The ratio of total

outstan&ing mortgages" inclu&ing the ousing Ginance Jompanies (GJs) to


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the FDP is currently , percent, If y 5656" this ratio $ere to reach 56

percent" a numer similar to that of Jhina" $e coul& e;pect the mortgage

in&ustry gro$ing at an a7erage rate of o7er 56 percent &uring the ne;t

&eca&e,

2. @ea(th &anage&ent #i(( be big business #ith 17A gro#th$

Foing for$ar&" $ealth is e;pecte& to get further concentrate& in the han&s of

a fe$, As illustrate& in E;hiit 0&" the top an& of income &istriution is

e;pecte& to gro$ most rapi&ly o7er the ne;t &eca&e,

3. B)he %et i((ion #i(( be the (argest seg&ent$

Also illustrate& in E;hiit 0& is the fact that the income group right elo$ the

mi&&le class in the annual house hol& income range of !s .6"666 to !s

566"666 per annum $ill e the largest group of customers, These customers

$ill e pro=taly ser7e& only $ith lo$ cost usiness mo&els ha7ing lo$ rea'

e7en tic'et si@e of usiness, The ne;t &eca&e $oul& $itness an's

e;perimenting $ith &i3erent lo$ cost usiness mo&els" smaller cost e3ecti7e

ranches an& ne$ use of technology to ser7e this segment pro=taly,

:. )he nu&ber of branches to gro# 2AE ")5s to gro# FA$

In&ia has a 7ery lo$ penetration of ranches an& ATMs as compare& to some

of the other &e7elope& an& &e7eloping nations as illustrate& in E;hiit 0e,

E;hiit 0f highlights the usage pattern of 7arious an'ing channels in terms

of numer of 7isits, It is e7i&ent that the an' ranches an& ATMs are y far

the most popular channels" &espite a &eca&e of promotion of alternate

channels, The e;perience in &e7elope& economies also corroorates that

ranches an& ATMs continue to e the critical channels" although certain

transactions ha7e shifte& to alternate channels, As such" there is a

reuirement of at least 46"666O6"666 a&&itional ranches an& 0*6"666O

0.6"666 a&&itional ATMs in the coming &eca&e, This $ill e / times more

than the ranches an& ATMs launche& in the last &eca&e,


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F. 5obi(e banking to see huge gro#th and #i(( rede'ne transaction

banking paradig&$

As illustrate& in E;hiit 0f" the upta'e of internet an& call centers is lo$ in all

segments other than foreign an's, Jomparing $ith usage pattern in >#" the

signi=cant potential in online an& phone channels is apparent, o$e7er"

In&ia may e7ol7e &i3erently, The penetration of internet an& roa& an&

access in In&ia has een lo$ so far, o$e7er" $ith the a&7ent of moile

an'ing" the access to an'ing facilities coul& completely get re7olutioni@e&

o7er the ne;t &eca&e,


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?. Custo&er Re(ationship 5anage&ent 4CR56 and data #arehousing

#i(( drive the net #ave of techno(og in banks$

E;hiit 0h illustrates that the a7erage numer of an'ing pro&ucts per

customer in In&ia is signi=cantly lesser than the gloal enchmar's, There is

a signi=cant potential for cross selling amongst all categories of an's in

In&ia, Fi7en that cross selling is highly costOe3ecti7e as compare& to all

other means of customer acuisition" an's $ill a&opt J!M strategies


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aggressi7ely in pursuit of costOe3ecti7e usiness mo&els &escrie& in point /

ao7e,


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Documents

Changing Scenario of Indian Banking Sector