Executtive Summary

8/3/2019 Executtive Summary

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IMPACT OF GLOBLISATION ON INDIAN BANKING SECTOR

EXECUTTIVE SUMMARY

Banking sector reforms in India are aimed at induction of best International

practices and technological changes for competing globally. The reserve bank

of India (RBI) has time and again emphasized transparency, diversification of

ownership and strong corporate governance to mitigate sector. Banking sector

reforms have supported the transition of Indian economy to a higher growth

path. While significantly improving the satiability of the financial system. In

comparison with the pre-reforms period, the Indian Banking system today is

more stable and efficient. However, the gains of the past decade need to be

consolidated, so that these could be translated to derive the institutions, markets

and practices into a mature financial system that a can meet the challenges of

globalization. The banking system would, therefore, not only need to be stable,

nut also supportive of still higher levels of planned investments by channeling

financial resources more efficiently from surplus to deficits sectors.

Competitive pressures as well as prudential regulatory requirements have

made banks risk adverse as reflected in their tendency to investment in

relatively risk free gilt instruments. The behavior and strategies of banking

business need changes infavour of tesk taking even while performing core

activities. Also, there is a need to ensure long term finance to support

development and growth in the economy, even as restructuring takes place

through mergers and Universal banking.

The present book address issues like Basel II Accord guidelines, second

generation banking Sector Reforms, Cost Benefits and productivity analysis of

Indian banks, danger Zone, banks, Privatization and the recent reform measures.

TYBCOM (BANKING AND INSURANCE) Vth Sem

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Vital statistics regarding the Indian banking Sector and the recent Annual

Policy Statement. 2008-2009 of the RBI has also been discussed. ___ India

gained highly from the LPG model as its GDP increased to 9.7% in 2007-2008.

In respect of market capitalization, India ranks fourth in the world. But even

after globalization, condition of agriculture has not improved. The share of

agriculture in the GDP is only 17%. The number of landless families has

increased and farmers are still committing suicide. But seeing the positive

effects of globalization, it can be said that very soon India will overcome these

hurdles too and march strongly on its path of development.


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2.2 CONCEPT OFGlobalization

The human society around the world, over a period of time, has

established greater contact, but the pace has increased rapidly since the mid

1980s. The terms globalization means international integration. It includes an

array of social, political and economic changes. Unimaginable progress in

modes of communications, transportation and computer technology have given

the process a new lease of life.

The World is more interdependent now than ever before. Multinational

companies manufacture products across many countries and sell to consumers

across the globe. Money, technology and raw materials have broken the

international barriers. Not only products and finances, but also ideas and

cultures have breached the national boundaries.

Laws, economies and social movements have become international in

nature and not only the Globalization of the Economy but also the Globalization

of politics, culture and law is the order of the day. The formation of General

Agreement on Tariffs and Trade (GATT), International Monetary Fund and the

concept of free trade has boosted globalization.


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CHAPTER -3

NEED FOR GLOBALIZATION INDIA

CRISIS IN THE 80S LEADING TO ADVENT OF NEW

ECONOMIC POLICY (NEP) 1991 AND GLOBALISATION

In 1985, a series of moves amounted to an expansive, debt dependent fiscal

policy directed at stimulating the growth of the economy. The changes covered

all the major fields of regulation except the capital market. The rigour of

Monopolies and Restrictive Trade Practices Act, (MRTP) ( 1969) was

considerably reduced. The government encouraged foreign investment into

many areas. It liberalized the imports of capital goods and materials, especially

those needed for large projects. The government restored to higher and higher

doses of deficit financing to defray its expenditures. By 1991 India was faced

with the prospect of defaulting of her debt obligations, unable even to secure

short term loans. In JUNE-JULY 1991, in order to restore confidence among

Indias debtors and in the rupee, the government entered into an agreement with

the IMF. The rupee was devalued by 24%. Quantitative Restrictions on imports

were moderated. Foreign financial institutions were allowed to enter the stock

market. A series of reforms were undertaken in all aspects of the economy

Industrial Reforms, Economic Reforms, Financial Sector Reforms, Banking

Reforms, Trade Reforms are the most important ones to be mentioned. The

following Table shows the Recovery from crisis after Globalization.


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INDIA : RECOVERY FROM CRISIS

(Per cent except as indicated)1990-

91

1995-

96

1996-

97

1997-

98

1998-

99

1999-

2000

2000-

011 2 3 4 5 6 7 8

GDP growth atConstant prices

5.3 7.3 7.5 5.0 6.9 6.4* 5.2@

Growth ofIndustrial

production

8.2 13.1 6.1 6.7 4.1 6.7# 4.9#

Inflation (AnnualAverage Change in

WPI)

10.3 8.1 4.6 4.4 5.9 3.3 7.2

Growth of Exports(measured in US $)

9.2 20.8 5.3 4.6 5.0 10.8 19.9

Growth of Imports(measured in US $)

13.5 28.0 6.7 6.0 2.2 17.3 0.2

Gross DomesticCapital Formation

24.1 26.5 22.1 22.9 21.2 22.7* N.A.

Public : 9.3 7.7 7.0 6.6 6.4 7.1* N.A.

Private : 14.7 18.9 15.1 16.3 14.8 15.6* N.A.

Gross FixedCapital Formation 22.9 24.4 22.8 21.7 21.2 22.3* N.A.

Public 9.0 7.7 6.9 6.4 6.3 6.4* N.A.

Private 13.9 16.7 15.9 15.4 15.0 14.9* N.A.

Gross Domestic Savings

23.1 25.1 23.2 23.5 22.0 22.3* N.A.

Public 1.1 2.0 1.7 1.5 -0.8 -1.2* N.A.

Foregin ExchangeReserves (end year,in billion US $)

5.8 21.7 26.4 29.4 32.5 38.0 42.3

* Quick Estimates - @ Revised Estimates - # Provisional - NA-Not

available


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Source : Revised Estimates of Annual National Income 2000-01, Central

Statistical Organisation, Economic Survey 2000-01, Handbook of Statistics on

Indian Economy, RBI Bulletin, July 2001.


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CHAPTER -4

BANKING SECTOR REFORMS TOWARDS

GLOBALISATION

Financial System forms a significant part of the infrastructure essential

for breaking the vicious circle of poverty. Schumpeter spoke of credit as a

phenomenon of development and regarded the banking system along with

entrepreneurship as banking in economic development is one of positive

contribution which ignites the growth and pattern of evolution of the banking

structure. The Indian banking system has passed through distinct phases of

development after independence. The first phase can be attributed to the

nationalization of 14 banks on July 19, 1969 (and another 6 banks in 1980)

Nationalization of banks was described as historic momentous and bold

and timely by some economists while it was vehemently criticized as wrong

and untimely by others In defense of her view, Mrs. Indira Gandhi, the then

Prime Minister of India, argued that the Indian Commercial Banking system did

not play its proper role in the planned development of the nation. According to

her, the banking system was controlled by a coterie of industrialist and business

magnates who had used public funds to build up private industrial empires.

Small industrial and business units were continuously and consistently ignored

and hence the nationalization of banks. Beginning 1969, the second phase can

be attributed to the diversification of the banking system in terms of expansion

and social banking; the third phase being attributed to the advent of NEP, 1991,

which gave a further impetus to this sector.

The then Congress government had appointed on August 14, 1991, a

committee under the chairmanship of Shri M. Narasimhan to examine all

aspects relating to the structure, organization, functions and procedures of the


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financial system. The committee submitted its final report to the government on

November 16, 1991. The committee had noted that deterioration in the financial

health of the system had reached a point where unless remedial measures were

taken soon, it would further erode the confidence of the depositors and

investors. Many major recommendations were made for the improvement of the

banking sector in their various segments, areas of concern were pointed, and an

agenda of reforms to be immediately implemented by the banks were suggested.

Some of the major policy reforms introduced in the banking sector, in brief,

were the following : 1) prudential norms introduced in banks, 2) imparting

greater transparency, 3) financial autonomy for nationalized banks announced,

4) new set of private sector banks were allowed to function and more foreign

banks allowed to open branches, 5) local area banks proposal was cleared for

implementation, 6) bank branch licensing were liberalized, 7) customer service

in banking sector was perceived as an integral part of overall reforms, 8) 25

core recommendations of GOIPURIA COMMETTEE report had been

implemented, 9) banks were allowed to set up Automated Teller machines(ATMs) to provide financial facilities, 10) separate department set up for

banking supervision. A major effort was made to strengthen the banking

systems in general and bublic sector banks in particular through measures of

capitalization, quality of loan portfolio, greater element of competition and

strengthening of supervisory process.

With all the above reforms and more reforms in other sectors too, India

was put on to the road of globalization, adopting it as an economic policy. Also

to attract foreign direct investments (FDI) to India, adoption of globalization,

liberalization and privatization became necessary since it found examples in

countries like Taiwan, Singapore and Thailand, which had attracted foreign

investments by adopting the policy of globalization.


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deficiency in banking services, the Banking Ombudsman Scheme has

been introduced in June 1995.


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2. Capital Account Convertibility Report and the Banking Sector

As part of Indias move towards opening up of the capital account,

the Report of the Committee on Capital Account Convertibility (CAC

Report) (Chairman: Shri S. S. Tarapore) had advocated important pre-

conditions part of overall consolidation of the financial sector. These

include, a progressive reduction in the gross non-performing assets (as

per cent of total advances) of the banking sector from 13.7 per cent (as on

March 1997) to 5.0 per cent by 2000 and complete deregulation of

interest rates by 1997-98. Similarly, the average effective Cash Reserve

Ratio has also been prescribed to be brought down over the same period

from 9.3 per cent as on March 1997 to 3.0 per cent. On attainment of

these signposts, the Committee made certain recommendations granting

freedom to the banks to borrow in overseas markets, short-term (upto one

year) and long-term (over one year), to the extent of 50 per cent of the

unimpaired tier-I capital with a sub-limit of one-third (i.e. 16.67 per cent)of tier-I capital for short-term borrowings.

3 Recapitalisation of Public Sector Banks

To restore the soundness of Public Sector Banks, the Government

of India has been contributing, on a selective basis, to the recapitalization

of Public Sector Banks, subject to these banks undertaking certainperformance obligations and commitments to ensure an improvement in

their viability and profitability.


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4 Equity Capital and Sub-ordinated Debt raised by Banks

To broaden the ownership base of several Public Sector Banks

(PSBS), the Government has effected substantial divestment of its

holding of shares in Public Sector Banks. The Banking Regulation Act,

1949 and the Banking Companies (Acquisition) Acts, 1970 and 1980

have been amended to allow private equity participation in the capital of

nationalised commercial banks upto 49 per cent of their paid-up capital as

part of their recapitalisation and restructuring efforts. Amendments to the

State Bank of India (SBI) Act and the State Bank of India General

Regulations, 1955 to facilitate public issue of shares of State Bank of

India were promulgated in October 1993.

5 Improved Governance

The Reserve Bank of India has made a beginning in bringing

greater clarity to the roles of Board of Directors and the external auditors

in the governance of banks. Boards have been directed to lay down

policies in areas like investments, asset-liability management and loan

recovery. The role of external auditors has been enlarged. As a move

towards greater transparency in banking operations, from 1996-97

onwards, banks have been directed to provide under Provisions and

Contingencies in the profit and Loss Account, details of provision for

bad and doubtful debts, provisions for diminution in the value of

investments and tax provisions separately instead of showing it as a

conglomerate item.


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Bank are also required to disclose the capital adequacy ratio as well

as net non-performing assets to net advances. These apart, banks have

been directed to set up Audit Committees of the Board that will be

responsible for ensuring the efficacy of the internal control and audit

functions of the bank, besides compliance with the regulatory norms.

These measures are expected to strengthen the perceived linkage between

management and risk control.

6 Autonomy of Public Sector Banks

Side by side, several banks are already in the process of

implementing the corporate strategies chalked out by the management

consultants appointed by them. One important are in this context pertain

to the question of autonomy of Public Sector Banks (PSBs). A certain

amount of functional autonomy had already been granted to management

of Public Sector Banks in terms of loan policy, interest rate policy and

recovery management. To further improve their efficiency, Public SectorBanks complying with certain performance parameters viz., a track

record of net profits on a continuous basis, 9 per cent net non-performing

assets cap, capital adequacy ratio of at least 9 per cent and a net worth not

less than Rs. 100 crore have been granted a higher degree of operational

freedom including those to recruit personnel with specialized skills

without going through the centralised recruitment process, freedom toappoint officers, decision on rural postings, deputation and lateral

movement to other banks.


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B) Strengthening the Institutional Framework

Apart from easing of the external constraints on banks, major

efforts have been made through appropriate institution building

measures.

1) Increased Competition

Entry of New Private Sector Banks

Enhancing competition among banks constitutes a key element of

financial sector reforms so as to raise efficiency and improve bank

performance. Accordingly, in January 1993, Reserve Bank of India

announced guidelines for entry of new private sector banks. The new

private sector banks with adequate capital, technology and managerial

competence were supposed to be vehicles of change in the banking sector

especially in the urban banking segment. Approvals have also been given

for establishment of new foreign banks to set up operations in India andexisting foreign banks have been allowed to expand their branch network.

Local Area Baks

In order to enhance competition in rural areas, Local Area Banks

(LABs) with jurisdiction over two or three contiguous districts have been

allowed. With a capital base of Rs. 5 crore, these new Local Area Bankscan build asset portfolio worth Rs.75.80 crore.


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C) Strengthening of Supervisory Mechanism

Banking Supervision

As the banking system acquires greater momentum and diversifies

into new areas and operations, there is greater need for effective and

consolidated supervision so that the systemic health of financial sector is

not jeopardised. Keeping this in mind, the Board for Financial

Supervision (BFS) has been established with operational support

provided by the Department of Banking Supervision (DBS) under the

aegis of the Reserve Bank of India. The medium-term strategy for

strengthening and restructuring banks includes improving loan recovery.

Towards this end, Debt Recovery Tribunals (DRTs) have been

established for expediting adjudication and loan recovery at select

centres.

In tune with international practices of supervision, a

comprehensive three-tier supervisory model comprising of both on-site

inspection, off-site monitoring and periodical external auditing based on

CAMELS (Capital Adequacy, Asset Quality, Management, Earnings,

Liquidity and Systems & Controls) methodology, already extant for

commercial banks has now been made applicable to other financial

entities as well. Steps have been initiated by the Reserve Bank of India to

resort to extensive use of information technology for purpose of

supervision.


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CHAPTER -6

GLOBALIZATION CHALLENGES.

NEED FOR NEW OUTLOOK

1. The liberalization of the insurance sector is forcing India banks

to take a fresh look at their products, their business processes

and their customer relations. If they do not make significant

changes in each of these categories now. They will be left far

behind the competition although the Indian banking sector is

not homogenous, all banks are being confronted by much the

same issues.

2. Banks will have to build the profitability of their operations

since banks especially in the public sector, have been required

to play a developmental role since independence, their business

model is not structured around profiles.

3. Banks will have to strengthen their capital base Indian banking

is currently suffering from a major shortage of capital. In an

foreign banks are affected public sectors banks are particular by

hared hit.., since the government has dramatically cut back

financing.

4. Banks will have to focus on building relationships with

customers based on service value, not product price. In other


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words, they will have to sell more to each customer and keep

him or her loyal.

5. Indian banks must successfully confront the complicated issue

of managing it.

6. Banks need to develop comprehensive databases intended to

improve customer profitability and understand risk. Since banks

have little organized customer date, it is difficult for them the

ways in which they might profitability beverage their

relationship with customers. Similarly, lacking sufficient

information, banks have little understanding of the varying and

manifold risks of particular assets. This often results in over

exposure

Finally, banks management must become more innovative andresponsive to change. Long term vision and leadership will help

banks benefits from liberalization.


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CHAPTER -7

MEASURES TAKEN BY INDIAN BANKING SYSTEM

Introduction :-

This has some relevance to the Indian Economic Reforms initiated in

1991. This is because of the dynamic, complex and still evolving mature of the

reforms the financial sector reforms have greatly changed the face of Indian

banking sector reforms have greatly changed the face of Indian banking. The

financial sector is open to international competition under World trade

organization (WTO). Financial sector reforms were initiated as part of overall

economic reforms in the country. The terms globalization is not only the

confined to economic reforms rather it is a broad phenomenon evolving the

translation of cultural, social and political scenarios among the nations. There

was a major shaft in Indian Development strategy since July, 1991 with the

implementation of New Economic Policy (NEP) for liberalization, privatization

and Globalzation (LPG). Since then, the financial sector is in a process of rapid

transformation. The Indian Banking system has a large geographic and

functional coverage the state Bank of India has countrys largest network with

more then 9,000 branches throughout the country with the total number of

branches for all banks nearing 70,000 (Sengupta and Thomas, 2006). Banking

today has transformed into a technology intensive and customer friendly model


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- Interest rated on deposits and lending have been deregulated with

banks enjoying greater freedom to determine their rates.

- Also the reserve requirement i.e., statutory liquidity ratio (SLR) and

cash reserve ratio (CRR) have been lowered.

- Thus releasing more lend able resources, which reduced and strong

banks have been allowed to access the capital market for raising

additional capital.

LICENSING FOREIGN BANKS :-

- Indias approach to financial sector reforms has served the country

well, in terms of aiding growth, avoiding crisis, enchanting efficiency

and imparting resilience to the system.

- In the Banking system, diversified ownership of public sector banks

has been promoted over the years. However the number of foreign

bank branches in India has increased in recent years since RBI issued

a number of licenses beyond the commitments of WTO.


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CHAPTER 10-

CHAGES IN INDIAN BANKING SYSTEM

Foreign Direct Investment as seen as an important source of non-debt inflows,

and is increasing being sought as a vehicle for technology flows and as a means

of attaining competitive efficiency by creating a meaningful network of global

interconnections.

FDI plays a vital role in the economy because it does not only provide

opportunity to host countries to enhance their economic development but also

opens new vistas to home countries to optimize their earning by employing their

ideal resources.

India has sought to increase inflows of FDI with a liberal policy since 1991 after

decades cautious attitude. The 1990s have witnessed a sustained rise in annual

inflows to India. Basically, opening of the economy after 1991 dose not live

much choice but to attract the foreign investment, as an engine of dynamic

growth especially in vies of fast paced movement of the world forward

Liberalization , Privatization, and Globalization.

Limits for FDI

FDI in the banking sector has been liberalized by raising FDI limit in private

sector banks to 74 per cent under automatic root including investment by

foreign investment in India . The aggregate foreign investment in a private

bank from all source will be 74 per cent of paid-up capital of the bank


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FDI and Portfolio investment in nationalized banks are subject to overall

statutory limit of 20 per cent. The same ceiling also applies in respect of such

investment in State Bank of India and its associate banks.

The Present banking Scenario

In recent times economy is increase the role of multi- nation banks in the

banking and insurance sector, despite, the concern expressed by the left

communist parties are opposing the finance minister move to raise overseas

investment limits in the insurance business. The government wants to fulfill a

pledge to allow companies like New York Life Insurance, Met life insurance to

raise investment in local companies to 49 percent from 26 per cent.

But it is opposed on the front that it will lead to state run insurers loosing

business and workers their job. Left do not want foreign investment to have

greater voting rights in private banks and oppose the privatization of state run

pension fund.

There are several reasons why such move is fraught with dangers. When

domestic or foreign investors acquire a large share holding in any bank and

exercise proportionate voting rights, it creates potential problems not only of

excursive concentration in the banking sector but also can expose the economy

to more intensive financial crises at the slightest hint of panic.

Opposition is not considering the need of present situation. FDI in banking

sector can various problems of the overall banking sector . Such as-


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CHAPTER 11 :-

INDIAN BANKINGAFTER

GLOBLISATION

When one looks at the reforms in the banking sector since 1991, it may appear

that we have come a long way. With new banks in the system competition has

indeed intensified. Prudential regulation is in place. There has been

deregulation of interest rates which has given banks power pricing of their

products. These are the major changes which have taken place already. And

yet the banking sector in the medium term is empected to see even more

fundamental changes. The first relates to ownership. Public Sector banks are to

retain as Public Sector Banks. In respect of private Sector Banks, RBI has

opened up possibility of organic as well as inorganic growth of Foreign Banks

operating in India. After Globalization there are many changes in Indian

Banking sector such as:-

Changes in Indian banking sector after Globalization:-

-MERGER OF NATIONALIZED BANKS:-

Since 1991-92 with the onset of liberalization and deregulation process the

banking sector in India is undergoing a sea changes . A gradual shift has place

from the regulated environment a market driven competitive system. With the

opening up of financial services under WTO, the process of globalization would

gain momentum. In the banking system all over the world forth coming

changes are associated with.

- Consolidation of players through mergers and acquisitions.


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- Globalization of operations.

-Development of new technology.

The high level committee constituted by IBA in its report on banking

Banking industry Vision2010 has made the following as management will

Mergers and Acquisitions would gather momentum as management will

strive to met the expectation of stock banks. A banks seek niche areas , we

could see emergences national banks 100% global scale and number of regional

players.

Mergers among banks in India are going to be natural phenomenon in the

year to come. The process of mergers and acquisition is not a new happening in

case of Indian banking Grindlays banks emerged with standard bank, Times

Banks with HDFC Bank of Madura with ICICI Bank, Nedungadi Bank Ltd.,

With Punjab National Bank an most recently Global Trust Bank merged with

oriental bank of commerce.

MERGERS OF BANKS SINCE - 1991

SR.NO MERGED WITH YEAR

1. Purbanchal Bank Central Bank of India 1991

2. New Bank Of India Punjab National Bank 1994

3. Bank of Karad Bank of India 1994

4. Kashinath seth Bank State Bank of India 1996

5. Bari Doab Bank Oriental Bank of Commerce 1997

6. Punjab Co-op Bank Oriental Bank of Commerce 1997

7. Bareilly Co-op Bank Bank of Baroda 1999

8. Sikkim Bank Ltd. Union Bank of India 1999

9. Times Bank Ltd. HDFC Bank 2000


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10. Bank of Madura ICICI Bank 2001

Source : Indain banks associeation.

Impact of globalization with reference state bank of India Impact of

globalization with reference state bank of India Bank

State Bank of Saurashtra merger with State Bank of India gets

government approval

July 24, 2008 The Union Cabinet today decided to issue an order

sanctioning the scheme of Acquisition of State Bank of Saurashtra by

State Bank of India and to introduce Bill :-

a) repealing the State Bank of Saurashtra Act, 1950 in the Parliament.

b) to take consequential amendments in the State Bank of India

(Subsidiary Banks) Act, 1959 to remove references to State Bank of

Saurashtra wherever it occurs in the State Bank of India (Subsidiary)

Banks Act, 1959. The Bill would be called namely State Bank of India

(Subsidiary Banks Amendment) Bill, 2008.

* AN INTEGRATED APPRAOCH TO FINANCIAL PANNING

Banks intermediation in India is much lower than in most of south east Asia.

Further given the changing profiles bath in terms of age profile and increasing

affluence, customers increasingly demand enhanced service levels and multiples

products from banks. Today customers seek finable and convenient and

convenient distribution channels available at all times and places. They prefer

banks which offer doorstep holistic banking services to enables them to meet all


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their financial needs under a single umbrella - be it traditional banking,

insurance, mutual fund investment or credits cards.

In short, today bank customers are buyers of total financial solutions, the

financial system of the future would, therefore entail large size banking malls as

banks convert them selves into upper shops offering a wide range of financial

products and other value added technology driven services. The new growth

paradigms market shift towards retail banking since the mid nineties. Areas like

mortgage products credit cards, utility services etc are still offering vast

potential waiting to be tapped.

* MULTIPLE DELIVERY ACCESS.

Financial services delivery has undergone rapid changes in the last two years.

A particular faced of change has been the increasing usage model as against the

Face to face branch. New delivery channels being developed in view of the

changing customers profile. The younger generation have been introduced of

future bank customers and they are driving the technology innovation in banks.

Banks are now reengineering their services for optimal benefits to their

customers. State of the art Technology offers ATMs credit cards, Debit Cards,

Phone Banking, Internet Banking etc. ATMs networks for instances has

changed the front officers of bank branches and given customers 24 hours

access to their accounts anytime anywhere. Core banking solutions with

capability for online, real time transaction processing are now being adopted by

the public sector banks. A number of banking has set up banking over the

telephone, Internet, ATM or branch infect provides a means for one bank free

banking future.


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It is technology that is enabling banks to provide these flexible

distribution channels. Such technological innovation have resulted in a win

win situation for the both customers who are getting quality customers service

and saving on their precious time and banks with reduced transaction costs.

Internet has become an increasingly powerful tool for banks to serve existing

customers increased information is encouraging customers to change their

banks more frequently. The growth to interest based e- finance is a strong trend

in India which I expected to continue in the next few years.

* FOCUS OF EFFECIENCY OF OPERATION.

Today, banks are no more competing locally, but in the global market place.

The banking industry here has been in industry in transaction adapting to this

new environment. Increased competitive pressures have forced management to

control and decrease assets through the use of ever expanding new technology.

If E- banking is introduced with corresponding in time and costs nor

improvement in the quality of services. These need for change is also being

addressed. Process reengineering is being introduced to enhance the speed and

efficiency of delivery of liability products and services, improve the quality of

appraisal and sanction, reduce the turn around time for sanction of loan and

enable pooling of skills, this will create database marketing capabilities

strengthening the banks ability to acquire new customers, build lasting

relationship with existing customers and increase customer satisfaction.

* CUSTOMIZATION OF PRODUCTS

In a business where products are increasingly are being customized value

addition and service quality is what will differentiate banks from their


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competitors. Over the last decade, induction of technology and introduction of

new products like derivatives securitization etc have made to meet the depth of

mark with varied financial products tailor - made to meet the specific

segments. Price competitiveness and efficiency in delivery channels will dictate

choices.

* RURAL FORAY

The technology advantages enjoyed by private banks in the 90s have been

more or less neutralized and services network in the future growth regions in

India will emerge as the key differentiator. More than 58% of the countrys

population is employed in rural India.

The rural economies are undergoing vast changes in the form of

increasing incomes and greater integration between rural to urban markets and

develop them into profit centers.

Banks have begun to Leverage their strong networks in rural areas with

customized products offering to suit the rural lifestyles and expectations. Going

forward, banks will realize future income streams increasingly from their rural

operations.

INTERNATIONALIZATION OF OPERATIONS.

With corporate scaling up their operations and embarking on an

overseas acquisitions spree, opportunities for banks are also on the rise

those have increased with the removal of restriction of regulations for

financing of such overseas by outs. As more Indian corporate spread


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their wings and foreign investments grow, the years a head could

provide the necessary funds and simultaneously financing the corporate.


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CHAPTER 11 :-

FUTURE SCENARIO OF INDIAN BANKING SECTOR

AFTER GLOBALIZATION:-

As the business environment is changing faster, the banks will have to make

continuous modifications, adjustment and refinements in their systems and

procedures.

In 1950 the old Imperial bank of India was 10 times bigger than the Hong

Kong and Shangai Bank. Since then Imperial Bank of India which towers bank

of India has morphed into State Bank O India Which towers over its

completion here.

Yet SBI is today 10th of modern of HSBCS size. So there is lot that

Indian Banks have achieved over part a few decades but they continued to

pygmies in the land of grants. It did not matter till now because Indian Banks

were wrapped in the protective for many decades. A few foreign grants were

already in when the barriers went up Citi-bank, Standard Chartered, HSBC

and few more were allowed in subsequently but were shackled with all sort of

restrictions. But the mesh of rules that ring fenced Indian Banks is now being

dismantled rapidly. Indian will have far greater freedom to come in grow and

acquire.


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TOP TEN GLOBAL AND INDIAN BANKS AND THEIR

ASSETS

Specify the unit of measurement

International Size of assets Indian Banks Size of assets

Bank

Misuho Financial Group 1,285 State Bank of India 91

Citigroup 1,264 ICICI Bank 28

USB 1,121 Punjab National Bank 23

Credit Agricole Group 1,105 Canara Bank 22

HSBC Holdings 1,034 Bank of Baroda 19

Dcutsche bank 1,015 Bank of India 19

BNP Paribas 989 Central Bank of India 14

Mitsubishi Tokyo

Financial Group 975 Union Bank of India 13

Sumitomo Mitsui

Financial Group 950 Indian Overseas Bank 11

Royal Bank of Scotland 806 Syndicate Bank 10


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The Reserve Bank of Indias roadmap for the presence of Foreign in India

could, if actually implemented, herald a significant change in the competitive

dynamics of Indian Banking. The proposed road map subsidiary route andenvisages two district phase of change. India through the wholly owned also

opens appropriate for acquisitions of weak banks that RBI deems appropriate

for consolidation. The second phase will being from April 2009, When foreign

banks may be permitted to acquire controlling stakes in privately owned Indian

Banks.

The central Bank calls it a two - track and gradualist approach One

track is consolidation of banks in the Public and Private sectors.

The second track is the gradual enhancement of the presence of Foreign Banks

in a synchronized manner and shaping up the bank internally with respect with

to target markets and customers, business model and competitive banking


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22%

24%

18%

6%

5%

4%

19%


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market will lead to efficiency gains that will benefit the entire economy. There

is still debate in banking circles on whether these will be full scale invasion by

Foreign Banks after 2009 or will it merely mean that the Foreign Banks that are

already in will expand more aggressively than in then Past? It is to soon to tell

but must take A few things for granted. Foreign Banks will let up their presence

in Indian within a few years. They will challenges the local Banks with their

global reach skills, technology and products.


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CHAPTER -12

RATEGIES OF BANKS FOR FUTURE AFTER

LOBALIZATION

The strategy each player should would depends on the unique positioning that

the player finds itself in. So one has to assess its position along specific

dimensions. There are

STRATEGIES FOR FUTUTRE

CUSTOMER CAPABILITY

Products Processes

Customers Technology

Geographies Operations

Brand & Positioning Knowledge Management

STRATEGIC

Present strategy

Growth aspiration

COMPETITION FISCAL

Competitive Actions Investment

Change in landscape Capital Adequacy

Profitably


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MARKETS :-

The banks should assess their positioning with respect to products andservices, target markets pen etration and reach in terms of geography.

CAPABILITY :-

Banks would need to assess their positioning in terms of their

internal capabilities that includes technology, efficient processes, enabling

structure and capable human resources and determine their competitiveness in

market place.

FISCAL :-

Fiscal health can be known by answering the following question:-

- Is there adequate capital from a regulatory perspective ?

- Are there profitability concerns ?

- Is there adequate capital for growth ?

STRATEGIC :-

Strategic aspiration of the bank should also be taken into consideration.

Ultimately growth has to be linked to the level up to which the bank can bearrisk.


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COMPETITION :-

The above four dimensions are internal to bank Competitive movements

can set bank all the planning done, if strategies by competitors are not factored

in.

What do public Sector grants that currently have 74% of the current

market has to rise to the challenge. There are 3 things that PSB have to do

before 2009:-

They II have to strengthen their capital base.

They will have improve their operating efficiency since high

intermediation costs remain a significant problem in India.

They II have to target new business opportunities that lie beyond bread

and butter business like working capital & trade Finance : Personal Financial

Service] treasury & risk Management.


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0

20

40

60

80

100

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

East

West

North

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