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Banking System Survey

Banking System Survey

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Published by Ravi Prakash

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Published by: Ravi Prakash on Nov 16, 2011
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INDIAN BANKING SYSTEM: THE CURRENT STATE &ROAD AHEAD
ANNUAL SURVEYFebruary 2010
 
FEDERATION OF INDIAN CHAMBERS OF COMMERCE & INDUSTRY
Federation House, 1, Tansen Marg,New Delhi – 110001
 
 
Indian Banking System: The Current State & Road Ahead Page | 1
EXECUTIVE SUMMARY
The pace of development for the Indian banking industry has been tremendous over thepast decade. As the world reels from the global financial meltdown, India’s banking sectorhas been one of the very few to actually maintain resilience while continuing to providegrowth opportunities, a feat unlikely to be matched by other developed markets around theworld. FICCI conducted a survey on the Indian Banking Industry to assess the competitiveadvantage offered by the banking sector, as well as the policies and structures required tofurther stimulate the pace of growth.A majority of the respondents, almost 69% of them, felt that the
Indian bankingIndustry was in a very good to excellent shape
, with a further 25% feeling it was ingood shape and only 6.25% of the respondents feeling that the performance of theindustry was just average.This optimism is reflected in the fact that 53.33% of respondents were confident ina growth rate of 15-20% for the banking industry in 2009-10 and a greater than20% growth rate for 2014-15.
(Refer: Fig 1, Pg 5)
 Some of the
major strengths
of the Indian banking industry, which makes itresilient in the current economic climate as highlighted by our survey wereregulatory system (93.75%), economic growth (75%), and relative insulation fromexternal market (68.75%).On being asked to rate India on certain essential banking parameters (RegulatorySystems, Risk Assessment Systems, Technological System and Credit Quality) incomparison with other countries i.e. China, Japan, Brazil, Russia, Hong Kong,Singapore, UK and USA the following results emerged:
o
 
Regulatory systems
of Indian banks were rated better than China, Brazil,Russia, UK; at par with Japan, Singapore and Hong Kong where as all ourrespondents feel that we are above par or at par with USA.
(Refer: Fig 3, Pg7)
 
o
 
Respondents rated India’s
Risk management systems
more advanced thanChina, Brazil and Russia; 75% of the respondents feel that we are above or atpar with Japan, 55.55 % with Hong Kong, Singapore & UK and 62.5% withUSA.
(Refer: Fig 4, Pg 8)
 
o
 
Credit quality
of banks has been rated above par than China, Brazil, Russia,UK and USA but at par with Hong Kong and Singapore and 85.72% of therespondents feel that we are at least at par with Japan.
(Refer: Fig 5, Pg 8)
 
 
Indian Banking System: The Current State & Road Ahead Page | 2
o
 
Technology systems
of Indian banks have been rated more advanced thanBrazil and Russia but below par with China, Japan, Hong Kong, Singapore, UKand USA.
(Refer: Fig 6, Pg 9)
 Respondents perceived ever rising customer expectations and risk management asthe greatest challenge for the industry in the current climate.93.75% of our respondents saw
expansion
of operations as important in thefuture, with branch expansion and strategic alliances the most important organicand inorganic means for global expansion respectively.An overwhelming 80% of respondents admitted that the primary strength of NBFCsover banks lies in their ability to provide reach to the last mile and were also wereunanimous in the need to strengthen NBFCs further.
 
Further, 81.25% also felt that there was further
scope for new entrants
in themarket, as there continue to remain opportunities in unbanked areas. However,57.14% felt that
NBFCs
may be allowed to be established as banking institutionsbut only if adequate capitalization levels, a tiered license that enables newentrants to enter into specific areas of the business only after satisfactorilyachieving set milestones for the prior stages, cap on promoter's holdings and otherregulatory limitations are ensured.73.33% of our respondents are cent per cent compliant with
core banking solution
 requirements, with the remainder, comprising mostly of our public sectorrespondents, lagging behind in implementation in rural areas.Public Sector Banks, Private Sector Banks as well as Foreign Banks view difficulty inhiring highly qualified youngsters as the major threat to their
HR practices
aheadof high staff cost overheads, poaching of skilled quality staff and high attritionrates.
(Refer: Fig 11, Pg 16)
 Due to long-term maturity, the trend for prime lending rates seems to be changingnow. However, there are other factors which have led to the stickiness of lendingrates such as wariness of corporate credit risk (33.33%), competition fromgovernment small savings schemes (26.67%).With regards to loan disbursement, while industry shows preference for a jointappraisal system, banks are happy with the current system and in fact 71.43% of our respondents felt that there was no need for standardized credit appraisalacross the industry.

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