Changing scenario of Indian banking sector 1
Prof.RupeshR.Dahake, 2 Prof.Sachin S. Panchabhai, 3 Prof.Pravin Kataria 1st ! 3rd
"uthor Assistant Professor (MBA Department)
Aliation: -DattaMeghe Institute of Engineering Technology !esearch" #a$angi%ar&ha Email: -rupesh&aha'e*+gmail,com -rupesh&aha'e*+gmail,com Moile no: - ./0*...* 2nd
"uthor Assistant Professor (MBA Department)
Aliation: -Dr, Ame&'ar Institute of Management #tu&ies !esearch" 1agpur, Email: -panchahai2ss+re&i3mail,com -panchahai2ss+re&i3mail,com Moile no: - .45/4665
"bstract In&ian an'ing in&ustry is one of the most important pillar in the In&ian economy" an'ing sector is a ac'one of economy of any country, De7elopment of an'ing sector sector al$ays al$ays lea&s lea&s &e7elo &e7elopme pment nt of country country $e can 8u&ge 8u&ge if this this sector sector gro$ gro$ positi7el positi7ely y it means economy gro$ing, gro$ing, That $hy e7eryone e7eryone say the In&ian an'ing 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 $ith impro7ement in asset uality" e;ecution of pru&ent ris' management management practices practices an& capital capital a&euacy" a&euacy" impro7ing impro7ing customer customer ser7ices ser7ices e;per e;perienc ience e an& e;pans e;pansion ion of an'in an'ing g acti7i acti7itie ties s in rural area, area,
In this paper an
attempt has een ma&e to stu&y changing scenario of In&ian an'ing sector an& also stu&y opportunities an& challenges ahea& of In&ian an'ing sector, sector, Ke#or Ke#ords$ ds$ %onperfo %onperfor&in r&ing g assets, assets, Risk &anage& &anage&ent, ent, 'nancia( 'nancia( inc(usio inc(usion, n, Rapo Rate, &onetar po(ic
I%)R*D+C)I*%$
To&ay To&ay $orl& economy health is not $ell" many ig nation#A &ue hea7y loss arise in the =nancial
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& $ith multiple an& concurrent challenges" increase& competition" rising customer e;pectations an& &iminishing customer loyalty, %hat est the an's can &oC In this fast changing an& comple; scenario" possily" the only solution seems for each an' to gi7e the customers optimum
len& of technology an& personali@e& ser7ices in the most con7enient manner at lo$ 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 $ith some restrictions,
In the e7olution of this strategic in&ustry spanning o7er t$o centuries" immense &e7elopments ha7e een ma&e in terms of the regulations go7erning it" the o$nership structure" pro&ucts an& ser7ices o3ere& an& the
technology &eploye&, The entire e7olution can e classi=e& into four &istinct phases, 0, Phase I- Pre-1ationali@ation Phase (prior to 0.) 5, Phase II- Era of 1ationali@ation an& Jonsoli&ation (0.-0..6) /, Phase III- Intro&uction of In&ian Ginancial Ban'ing #ector !eforms an& Partial ?ierali@ations (0..6-5664) 4, Phase IK- Perio& of Increase& ?ierali@ations (5664 on$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&
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:;:<6 Prof.Sunita "gra#a(1 and Prof."nkit ain2 the an'ing sector in In&ia has
un&ergone signi=cant transformation in the
past fe$ years, A con&uci7e
macroeconomic en7ironment" the lan&mar' foreclosure la$" falling interest rates" ample liui&ity in the system" the fast sprea&ing technological re7olution" an& huge potential in the retail segment augur $ell for In&ian an's, o$e7er" the numerous challenges face& y an's such as increasing competition" pressure on sprea&s" an& systemic changes to align $ith international stan&ar&s ha7e necessitate& a ree7aluation of strategies an& processes in or&er to remain competiti7e in this &ynamic en7ironment, As per the census recor&s" only /6,0 per cent of the rural househol&s are a7ailing an'ing ser7ices, ne of the reasons may e nona7ailaility of an' ranches in the neighorhoo&, The e;isting rural ranches of many of the ig an's are eing close& as they ha7e ecome un7iale, Ban's nee& to thin' Lout of the o;< $here o; is the representation of all the teste&" trie& things that al$ays $or'e& in the past, They $oul& ha7e to thin' outsi&e the oun&aries of current practices" pro&ucts" ser7ices" organi@ations" an& in&ustries as they fall ehin& the trea&mill of faster an& more rapi& pace of change, The ne$ usiness en7ironment thus puts a premium on creati7ity an& inno7ation more than
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*%)-=
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To To To To
'no$ the an'ing sector of In&ia stu&y current scenario of an'ing sector in In&ia =n& the challenges opportunities of an'ing sector, suggest impro7ement,
Research design$0
The report has een &e7elope& ase& on uantitati7e, Data an& information collecte& from 7arious $e sites" 7arious an'ing sector research report of 7arious research institute etc, 5ethodo(og$0 1. Desk research$ A &etaile& re7ie$ of rele7ant literature for the In&ian an'ing
sector $as con&ucte& at this stage, 2. Co((ation and ana(sis of infor&ation$
All &ata an& information gathere&
through secon&ary &ata $as collate& an& analy@e& for the purpose of &e7eloping the research paper,
C"--8%/8S 8>*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
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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 $ell as potential competition
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from ne$ entrants, A&opting an& a&apting to technological changes inno7ation to meet
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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"
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#eparate licenses for nichespeci=c an'ing operationsfunctions such as $ealth management" in7estment an'ing" $holesale an'ing or retail an'ing, This has een spo'en aout in some &etail y a special Jommittee set up y !BI on =nancial inclusion,
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!eforms in Jorporate &et mar'et" Fo7ernment Det Mar'et Money Mar'et, Acti7ating corporate fun&ing through alternati7e channels of money mar'et an& on&s y intro&ucing enchmar' sprea&s an& transparency in the mar'ets, (The !BI has alrea&y reintro&uce& I!Gs an& also has put up a paper on =nancial enchmar's),
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Gocus on asset O liaility management for an's,
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Increase&
>sage
of Technology
in Ban'ing, ?e7eraging
of technical
&e7elopments on 7arious an'ing acti7ities •
Gocus on Ginancial InclusionDeepening
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Intro&uce measures for the remo7al of structural ottlenec's on cre&it &eli7ery an& free pricing of =nancial assets
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Bring aout transparency an& impro7ement in clearing an& settlement practices
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!eforms aime& at creating liui&ity an& &epth for ecient price &isco7ery of all an'ing pro&ucts
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I&pact of 5easures$
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1orms on 1PAs $oul& impro7e uality of assets reco7ery" liui&ity an& the o7erall alance sheets of an's,
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Jonsoli&ation of an's an& ne$ 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,
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-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
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 $ill e / times more than the ranches an& ATMs launche& in the last &eca&e,
F. 5obi(e banking to see huge gro#th and #i(( rede'ne transaction banking paradig&$
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" $ith the a&7ent of moile an'ing" the access to an'ing facilities coul& completely get re7olutioni@e& o7er the ne;t &eca&e,
?. Custo&er Re(ationship 5anage&ent 4CR56 and data #arehousing #i(( drive the net #ave of techno(og in banks$
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 $ill a&opt J!M strategies
aggressi7ely in pursuit of costOe3ecti7e usiness mo&els &escrie& in point / ao7e, <. anking &argins #i(( co&e under pressure$
The ne;t &eca&e $ill see a &ramatic change in margins as the $holesale &et mar'ets &eepen an& corporate customers access the $hole sale mar'ets &irectly, Gurther" shoul& the sa7ings an' rate e lierali@e&" an's $ill mo7e to a regime of lo$ margins, E;hiit 0i illustrates the =n&ings of a recent IBA sur7ey con&ucte& across an's to un&erstan& their perception of the future tren&s, ;. %e# &ode(s to serve the S&a(( and 5ediu& 8nterprises 4S586$
E;hiit 0' illustrates the results of a sur7ey con&ucte& y GIJJI to gauge the le7el of satisfaction among large" me&ium an& small usiness customers $ith regar& to an'ing ser7ices, 9. Invest&ent banking #i(( gro# over tenGfo(d$
In7estment an'ing $ill e among the fastest gro$ing segments in the an'ing in&ustry rising from 4 percent to percent of the entire corporate an'ing re7enue pool, The larger corporate customers e;pect to &eman& higher support for international e;pansion an& mergers an& acuisitions o7er ne;t &eca&e as sho$n in E;hiit 0l, Gurther" as the $holesale &et mar'ets &eepen" the larger corporates $oul& a7ail of a&7isory an& capital mar'et ser7ices from an's to access capital mar'ets, 17. Infrastructure 'nancing to hit over Rs 27 tri((ion on co&&ercia( banks books$
As In&ia continues to rely on pri7ate fun&ing for infrastructure &e7elopment" infrastructure $ill occupy a larger share of the alance sheets, alf of the &et =nance for infrastructure to&ay comes from an's, C*%C-+SI*%
In&ia
In coming year In&ian
an'ing sector $ill is real ac'one of economy there are huge scope for an'er to e;pan& his operation an& earn more pro=t $ith help of ne$ technology li'e moile an'ing" clou& computing" internet an' etc, In my point of 7ie$ an'er shoul& gi7e more focus on customer relationship management than ne$ technology an& also train an& recruit goo& employees for the organi@ation so they can han&le& customer properly, In&ian an'ing sector $ill e the $orl& iggest mar'et in the $orl&, ib(iograph$ •
In&ian Ban'ing 5656 !eport #eptemer 5606 By cg,com
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pportunities Jhallenges of In&ian Ginancial Mar'ets !eport By P$J In&ia !eimagining Ban'ing in In&ia 560/ !eport y y Mcinsey Jompany" Inc,
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In&ian Ban'ing In&ustry: Jhallenges An& pportunities International
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ournal of Application or Inno7ation in Engineering Management •
(IAIEM) Kolume 5" Issue 0 anuary 560/ I##1 5/0. -44 %i'ipe&ia,com