Indian Banking Sector: Challenges and Opportunities

KV Kamath, SS Kohli, PS Shenoy, Ranjana Kumar, RM Nayak, and PT Kuppuswamy N Ravichandran (Coordinator)

includes debate by practitioners and academicians on a contemporary topic

COLLOQUIUM

Executive Summary

KEY WORDS

Disintermediation .ee-and .und-based Business Credit Risk E-banking CRM

A distinguished panel of managing directors and chief executive officers of some of the well-known banks in the country responded to the theme on the challenges and opportunities faced by the Indian banking sector in the liberalized environment. The contributors addressed the following issues: .inancial reforms with specific reference to Indian banking industry focusing on implications to the existing players, new entrants, multinationals, and consumer behaviour. New and emerging opportunities: consumer and commercial banking. Competition: players, intensity, market size, profitability, and growth. Responses to challenges with reference to restructuring, automation, product delivery, and process reengineering. Issues related to governance, regulation, and audit. Product engineering, product design, and product delivery. Consumer expectations, feedback, cross-selling, customer relationship management(CRM), market segmentation, marketing, branding, and new products introduction. HR related issues: VRS, compensation, education and training, empowerment, and career plan. .uture scenario: Broad trends in the next five years and the expected position. E-banking and its importance. Salient features of the responses included: The Indian banking sector is at an exciting point in its evolution. The opportunities to enter new business and new markets and to deliver higher levels of customer service are immense. As the Indian banks position themselves as financial service providers, banking business is getting redefined. Technology is unsettling the earlier business processes and customer behaviour is undergoing change. These have enhanced the forces of competition. Competitive advantage can be achieved through harnessing the potential available in the employees by creating a positive work culture and enlisting the support of all the employees to the organizational goals. Indian banks have adopted better operational strategies and upgraded their skills. They have withstood the initial challenges and have become more adaptive to the changing environment. In the complex and fast changing environment, the only sustainable competitive advantage for banks is to give the customer an optimum blend of technology and traditional service. .our trends are fundamentally altering the banking industry: consolidation, globalization of operations, development of new technologies, and universalization of banking.

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N Ravichandran (Professor , IIMA): The economic re- K V Kamath (MD and CEO, ICICI Bank): It is said that (Professor, forms initiated by the Government of India roughly about the banking sector mirrors the larger economy its linka decade ago have changed the landscape of several secages to all sectors make it a proxy for what is happening tors of the Indian economy. The Indian banking sector is in the economy as a whole. Indeed, the Indian banking no exception. This sector is going through major changes sector today has the same sense of excitement and opporas a consequence of economic reforms. The changes af- tunity that is evident in the Indian economy. The fundafect the ownership pattern of banks, availability of funds, mental structural changes in recent years have taught us the cost of funds as well as opportunities to earn, range many lessons. A combination of developments arising of services (fee-based andfund-based), and management from technological advancements and a liberalized marof priority sector lending. As a consequence of liberaliza- ketplace disintermediation, blurring of traditional roles tion in interest rates, banks are operating on reduced and boundaries, emphasis on shareholder value creation spread. Development financial institutions would have a has led to a transformation of the banking sector. lesser impact on the Indian economy. Consumerism is The ongoing developments in Indian industry and here to stay. Non-banking products like insurance would government and the integration of India with the global be a tremendous opportunity. markets also offer myriad opportunities to the banking The economic reforms have also generated new and sector. Companies and governments are increasingly seekpowerful customers (huge Indian middle class) and new ing high-quality banking services to improve their own mix of players (public sector units, private banks, and operating efficiency. Companies seek to offer better cusforeign banks). The emerging competition has generated tomer service and maximize shareholder returns and govnew expectations from the existing and the new custom- ernments seek to improve the quality of public services. ers. There is an urgent need to introThe internationalization of India ofduce new products. Existing products fers banks the opportunity to service The new rules of competineed to be delivered in an innovative cross-border needs of Indian compation require recognition of and cost-effective way by taking full nies and India-linked needs of multithe importance of consumadvantage of emerging technologies. nationals. The growing Indian ers and the necessity to The new rules of competition diaspora, with its strong home counaddress the needs through require recognition of the importance try linkages, seeks a unique combiinnovative products supof consumers and the necessity to adnation of Indian ethnicity and global ported by new technology. dress the needs through innovative standards that offers a valuable niche products supported by new technoopportunity for Indian banks. logy. As a consequence of competition, the managerial The biggest opportunity for the Indian banking syschallenges include market segmentation, product posi- tem today is the Indian consumer. Demographic shifts in tioning, innovative delivery channels, cross-selling, etc. terms of income levels and cultural shifts in terms of lifeAt an organization level, elaborate systems need to be style aspirations are changing the profile of the Indian evolved to manage, assess, and contain risk (including consumer. This is and will be a key driver of economic portfolio, client, and exchange rate). growth going forward. The Indian consumer now seeks The banks may have to reorient their resources in the to fulfil his lifestyle aspirations at a younger age with an form of reorganized branch networks, reduced manpower, optimal combination of equity and debt to finance condramatic reduction in establishment cost, honing the skills sumption and asset creation. This is leading to a growing of the staff, and innovative ways of attracting talented demand for competitive, sophisticated retail banking managerial pool.The Government of India and the Re- services. The consumer represents a market for a wide serve Bank of India (RBI) on their part would strengthen range of products and services he needs a mortgage to the existing norms in terms of governing and directing finance his house; an auto loan for his car; a credit card the functioning of these banks. Banks needs to strengthen for ongoing purchases; a bank account; a long-term intheir audit function. They would be evaluated based on vestment plan to finance his childs higher education; a their performance in the market place. It is in this context pension plan for his retirement; a life insurance policy that we have invited the chief executive officers of Indian the possibilities are endless. And, this consumer does not banks to respond to the issues mentioned earlier. live just in Indias top ten cities. He is present across cit-

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ies, towns, and villages as improving driven yet innovative, stable yet flexThe biggest opportunity for communications increases awareness ible, and responsive to change. the Indian banking system even in small towns and rural areas. The Indian banking sector contoday is the Indian conConsumer goods companies are altinues to face some structural chalsumer. Demographic shifts ready tapping this potential it is for lenges. We have a relatively large in terms of income levels the banks to make the most of the number of banks, some of which are and cultural shifts in terms opportunity to deliver solutions to sub-optimal in size and scale of opof lifestyle aspirations are this market. erations. On the regulatory front, changing the profile of the The prerequisite for capitalizing alignment with global developments Indian consumer. This is on these opportunities is technology. in banking supervision is a focus area and will be a key driver of Technology is key to servicing all cusfor both regulators and banks. The tomer segments offering convennew international capital norms reeconomic growth going ience to the retail customer and operquire a high level of sophistication in forward. ating efficiencies to corporate and risk management, information sysgovernment clients. The increasing sophistication, flex- tems, and technology which would pose a challenge for ibility, and complexity of product and servicing offerings many participants in the Indian banking sector. The deep makes the effective use of technology critical for manag- and often painful process of restructuring in the Indian ing the risks associated with the business. Developing or economy and Indian industry has resulted in asset qualacquiring the right technology, deploying it optimally, ity issues for the banking sector; while significant progress and then leveraging it to the maximum extent is essential is being made in this area, a great deal of work towards to achieve and maintain high service and efficiency stand- resolution of these legacy issues still needs to be done. ards while remaining cost-effective and delivering susThe Indian banking sector is thus at an exciting point tainable returns to shareholders. Early adopters of tech- in its evolution. The opportunities are immense to enter nology acquire significant competitive advantage. Mannew businesses and new markets, to develop new ways aging technology is, therefore, a key challenge for the of working, to improve efficiency, and to deliver higher Indian banking sector. Wide disparities exist between levels of customer service. The process of change and various banks as far as technology capabilities are con- restructuring that must be undergone to capitalize on cerned; the sector as a whole needs to make significant these opportunities poses a challenge for many banks. progress on this front. Going forward, this sector will witness increased Building knowledge-driven, learning organizations competition between domestic players and possibly also is important in the current scenario of rapidly evolving from foreign banks that may seek to expand their presoperating environments. Knowledge and assimilation of ence in the Indian market, given the opportunities that new ideas and trends are essential to keep the organiza- the Indian market offers. The winners in this sector will tion ahead on the curve. This is true for banking as it is for be the players who can understand the customer, fulfil all other sectors. Banks must continuously seek to be customer needs, and achieve high levels of customer reaware of cutting edge practices in tention, leveraging technology, banking internationally and instituknowledge, and human resources to The Indian banking sector tionalize this learning across the orprovide quality products and servis at an exciting point in its ganization. This will prepare them for ices and manage risks and returns, evolution. The opportunithe future as Indian markets become thereby delivering value to all ties are immense to enter more sophisticated and integrated stakeholders. new businesses and new into the global financial markets. S S Kohli (CMD, Punjab National Another critical area for the Indian markets, to develop new Bank): Our countrys financial rebanking sector is people. The ability ways of working, to imto attract and retain talent is a key form process which was initiated a prove efficiency, and to success factor for a people-oriented decade ago has covered almost all the deliver higher levels of business like banking. Banks have to important facets of banking and has customer service. build organizations that are processresulted in improved bank performVIKALPA VOLUME 28 NO 3 JULY - SEPTEMBER 2003

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ance. In fact, the banking industry has undergone a com- for funds. The government has indicated its desire for plete transformation. The most distinct aspect of the fidisinvestment of its stake up to 33 per cent in the banks. nancial reforms was that they were in the nature of pre- Interest rates have been deregulated while the rigour of emptive rather than crisis-led. In other words, unlike directed lending has been progressively reduced. That many of the emerging economies which undertook fi- India did not catch the Asian flu which afflicted the nancial reforms as a result of banking crises, in India, the South East Asian economies in the nineties can be largely reform process was initiated with the recognition that the attributed to the successful implementation of prudenreal sector reforms carried out to mitigate the 1991 ba- tial norms in the financial sector. lance of payment crisis cannot be sustained without reA number of measures has been taken to bring down forming the financial sector. No doubt, the success of the the level of Non-Performing Advances (NPAs) like estabreforms was aided to a large extent by the relative macro- lishment of Debt Recovery Tribunals (DRTs), Lok Adalats, economic stability during the period. Another distinguishand the system of One-Time Settlement (OTS) of dues ing feature of the reforms was the successful sequencing. through mutual negotiation. Besides, the government has Gradualism, which was the hallmark of the Indian re- proposed to abolish the SICA and the BIFR. As an alterform process, was indeed the outcome of the democratic native, the system of Corporate Debt Restructuring (CDR) polity where popular consensus is crucial. based on the London Approach has been put in place A review of performance of which is a voluntary process of inbanks by the RBI (1999) in the dustrial rehabilitation. The SecuriGradualism, which was deregulated environment has tization and Reconstruction of Finanthe hallmark of the Indian brought out certain important findcial Assets and Enforcement of Secureform process, was inings: rity Interest (SERFAESI) Act passed deed the outcome of the Reflecting improvement in effiby the government is a step towards democratic polity where ciency, the interest spread for improving the recovery environment. popular consensus is banks has shown a decline and This Act provides the powers of seize crucial..That India did there has been a tendency toand desist to bankers. The Act also not catch the Asian flu wards convergence in this resprovides for setting up Asset Reconwhich afflicted the South pect, across all bank groups, exstruction Companies (ARCs) to take East Asian economies in cept foreign banks. over the bad debts of banks and thus the nineties can be largely Consequent to decline in operhelp in cleansing the balance sheet of attributed to the successful ating expenses, particularly staff banks. While this will address what implementation of prudencosts, the costs of financial interis known as stock of NPAs, to tackle tial norms in the financial mediation have fallen. the flow of NPAs, banks are implesector. Banks have, by and large, immenting credit risk management sysproved their asset portfolio; tems. there has been improvement in capital adequacy of Recently, banks have adopted customer segmentabanks as well. tion which has helped in customizing their product port The cost-to-income ratio has shown improvement in folio as well. Thus, retail lending has become a focus area respect of SBI group and nationalized banks. particularly in respect of financing of consumer dura Non-interest income as per cent of working funds bles, housing, automobiles, etc. Retail lending has also has shown modest increase. helped in risk dispersal and in enhancing the earnings of The reform process has been sweeping in its cover- banks with better recovery rates. age. Banks have already implemented internationally Since as much as 65 per cent to 70 per cent of the total followed prudential accounting norms for classification operating costs account for establishment expenses, raof assets, income recognition, and loan loss provisioning. tionalization of manpower in the industry is crucial. Following the Bank for International Settlements (BIS) Recognizing this, public sector banks have implemented guidelines, capital adequacy norms have also been pre- a Voluntary Retirement Scheme (VRS) targeting employscribed. To meet the additional capital requirements, ees at various levels as a result of which nearly 12 per cent public sector banks have been allowed to access the market of the workforce opted to retire. The gains in terms of

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reduction in establishment expenses arising out of the entrusted with the task of overseeing the organization, implementation of VRS will become available in the operationalization, and quality control of the internal medium term. Increase in staff productivity has been audit function and follow-up with the statutory and exvisible in the immediate term. In their bid to control ex- ternal auditors of the bank as well as examination by the penses, banks are also cutting down on tiers of control regulators. Disclosure levels in bank balance sheets have and rationalizing their branch network by mergers and been significantly enhanced while measures have also closure wherever required. been initiated to strengthen corporate governance in With the system of prudential regulation in place, banks following the suggestions of the Ganguly Comstructural regulation in the banking sector has been re- mittee. Banks are bringing out consolidated balance sheets laxed. Private banks have been established widening the reflecting the performance of their subsidiaries and prochoice for consumers and increasing the market size. viding for better transparency. Technology is emerging as a key driver of business As the Indian banks move gradually beyond univerin the financial services industry. The advancements in sal banking and position themselves as financial service computing and telecom have revolutionized the finan- providers, banking business is getting redefined. Techcial industry and banking on the net is fast catching on. nology is unsettling the earlier business processes and Banks are developing alternative channels of delivery customer behaviour is undergoing change. These have like ATMs, telebanking, remote acenhanced the forces of competition. cess, internet banking, etc. The payTo survive under these conditions, the The consolidation process ment and settlement system is also public sector banks will have to uncould lead to emergence being modernized. RBI is actively dertake business process reengiof four or five large banks pursuing the objective of establishneering, redefine their strategy, and with country-wide presing a Real Time Gross Settlement reorient their organization structure. ence and offices abroad (RTGS) system on par with other deBesides, they will have to align their veloped economies. Customers realIT strategy and HR strategies to the who could act as national izing the benefits of technology are overall business strategy. champions. At the same demanding more for less. Given the above challenges, time, smaller private sector With gradual deregulation, what would be the likely trends in banks and foreign banks banks are now exposed to different the next five years? Such vision for will continue to co-exist types of risks. In view of the dynamic the banking industry may encompass mainly as niche players. nature of the financial market, banks the following aspects: structure; stratface various market risks like interegy; systems; staff and regulatory. est rate risk, liquidity risk, exchange risk, etc. In respect Despite liberalization, the structure of the Indian of lending, they face credit risk which includes default banking system has continued without much change. risk and portfolio risk. Besides, banks also face risks like Public sector banks dominate the industry while the prireputational risk and operational risk. Putting in place a vate and foreign banks have continued to co-exist. The robust risk management system is, therefore, critical. consolidation process within the industry has been reThe ultimate responsibility of the soundness of a bank stricted to a few mergers in the private sector. However, rests on the board of directors. It is imperative that it there is recognition that size is important and this emensures that the management takes only such risks as can phasis on increasing the balance sheet can be expected to be managed and put in place proper risk mitigation sys- lead to consolidation in the public sector in the near futems. This requires that the board is well informed of the ture. This, of course, is strongly predicated on the enamanagements actions and can satisfy itself on the qualbling conditions provided by the owner (Government of ity of the reports that are being placed to it. These form India). As suggested by the Narasimham Committee, such the basis for corporate governance. Adoption of good mergers could be market-driven instead of externally corporate governance practices has been engaging the imposed. The consolidation process could lead to emerattention of banks as well as the regulators and owners. gence of four or five large banks with country-wide presTowards this end, banks in India have already put in place ence and offices abroad who could act as national chamthe Audit Committee of the Board (ACB) which has been pions. At the same time, smaller private sector banks and
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foreign banks will continue to co-exist mainly as niche next five years will see no major change in respect of players. For instance, these banks, especially the new public sector character of banks. private sector banks, may specialize in derivative busiWith most of the banks listed, and some of them listed ness including commodity-based products, investment abroad, the pressures on performance will be visible. banking, etc. as well as act as advisory in mergers and Banks would be adopting international accounting standacquisitions. ards and their balance sheets would be more transparent. The Development Financial Institutions (DFIs) as Instead of maximizing shareholder value, they could be they exist now are no longer viable. Instead, it can be using the triple-bottomline approach to quantify finanexpected that their business model would follow that of cial, environment, and social performance. banks and accordingly they would adopt the financial Due to adoption of technology, alternative channels conglomerate model. of delivery would become more active. This, in turn, The other aspect of structure relates to convergence. would result in a leaner branch network and better skilled With distinction between banks and non-banks blurring, workforce. Technology, therefore, will impact on the busithere is increasing convergence of product portfolio. Banks ness model strongly by cutting down costs of delivery are taking up insurance business and through this they and transaction. The emphasis will be on acquiring new aim to achieve economies of scope. The objective is to customers and maximizing opportunities for cross-sellachieve cross-selling, leveraging upon their franchise ing. value. Already, the bancassurance model has been Banks will also come under increasing pressure to adopted by Indian banks and this diversify their revenue streams. Since trend can only be expected to grow. capital market competes with the Banks will come under This segment will also see some banking system closely, which otherincreasing pressure to shake-ups in the next five years and wise is termed as disintermediation, diversify their revenue result in consolidation or takeover of the importance of bank lending could streams. Since capital business. be expected to decline. As a result, market competes with the Thus, the structure of Indian the share of interest income in banks banking system closely, banking system may be expected to revenue would come down necessiwhich otherwise is termed undergo a transformation, the main tating them to look for other sources as disintermediation, the drivers of which will be consolidaof revenue. Fee-based income would importance of bank lendtion, convergence, and technology. emerge as an important revenue ing could be expected to This will also reduce overcapacity in stream as would income from crossdecline. the Indian banking system and result selling of products. in banking concentration. To drive down costs, banks may The changes in structure would also impact on the outsource non-core services. This will help in maintainbanking strategy. Banks would grow out of their narrow ing lower manpower which can be more focused on core focus on banking services to become financial service services and reduce operating expenses. providers. The one-stop-shop approach would enable In Indian banking, technology has become an enathem to provide, besides banking services, a host of other bler and is moving on to become a driver of business. financial products, both to the retail as well as corporate Large scale computerization of branches and operations customers. Thus, the distinction between retail and cor- has enabled the banks to capture more of their business porate business would become sharper impacting on the on computers resulting in operational efficiencies includrevenue model. ing better customer service. If this can be called the first Though foreign participation in public sector banks phase of technology adoption, it has been quite successmay be allowed, it is difficult to envisage government ful insofar as banks have been able to adopt IT effectively ceding control of public sector banks in the near future. to carry out front-office operations. This phase has also Further, the government has stated that even if its stake seen a reorientation of the staff in terms of newer skills is diluted, it would continue to appoint the CMD of banks. albeit at a lower level. This would dampen any interest foreign players may show But, such large scale computerization, per se, will in associating with public sector banks. In essence, the not help in other operational areas like back-office func-

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tions, MIS, fraud prevention, valuereveal any change in the position of There is no doubt that addition, marketing, and higher busibanks with regard to adoption of technology will become a ness. meritocracy. The industry level wage key driver of financial With customers demanding settlements are bound to continue at business. The question is: speed, efficiency, and lower costs, use least during the 8th bi-partite settleWhat will be the next set of technology has proliferated. Banks ment (2002-07). Although, per se, this of technology initiatives? have now taken up the second phase would not impinge on staff motivawhere they are aiming at achieving tion, there is a need for banks to break connectivity between branches, setaway from such industry level settleting up of Central Data Repository, generation of MIS, ments. They can attract talent only by offering better pay. prevention of frauds, evolving value-added products, Although banks have designated divisions as HRD reducing transaction costs, and new initiatives like cross- divisions, they continue to perform personnel administraselling, CRM, etc. tion. On the basis of current trends, it is difficult to envisThe current emphasis is on providing alternative age any paradigm shift in HR policy in banks in the next channels of delivery like ATMs, telebanking, internet five years. Ideally, banks should adopt the framework of banking, etc. The provision of a host of financial services Strategic Human Resource Management (SHRM) which through a versatile technology platform will enable banks aims at aligning HR strategy with business strategy. to acquire more customers, cut costs, and improve servNotwithstanding this, it can be envisaged that due ice delivery. to pressures of business, banks would focus on developThere is no doubt that technology will become a key ing skills in areas like risk management, technology, driver of financial business. The question is: What will be marketing, etc. They could outsource training functions the next set of technology initiatives considering that totally thereby saving on costs. Training could also be banks have moved from mechanization technology to delivered on-line instead of the current emphasis on leclarge scale computerization of branches and operations ture-based inputs. The emphasis will be on developing and are now engaged in networking and development of cross-functional knowledge. The banker as known till now alternative channels and internet banking? will have to transform into a versatile, marketing-savvy It is clear that on-line finance will pick up and there professional with sufficient knowledge about the prodwill be increasing convergence in terms of product offer- ucts and services (e.g., mutual funds, insurance prodings banking services, share trading, insurance, loans, ucts, pension funds, smart cards, loans, private banking, etc. This could lead to banks adopting CRM strategies etc) competitor charges, customer preferences, and modes based on the data warehousing and data mining techof delivery. nologies. Anytime anywhere banking will become comThe regulatory regime has undergone significant mon and will have to be upscaled. Such upscaling could changes in the recent period. Prudential regulation has include banks launching separate internet banking servgiven place to structural regulation and the emphasis has ices apart from traditional banking services. shifted from micro-management of banks to risk-based In the post-VRS scenario, banks have been able to supervision. The emphasis on self-regulation by banks bring down their operating costs will continue. Risk-based supervision without upsetting their business. provides for such advantages as it is In the post-VRS scenario, However, the average age profile and based on the mapping of the risk probanks have been able to the skill sets of employees continue file of each bank and the required bring down their operating to remain unfavourable to meet the supervisory responses. Progressive costs without upsetting challenges of change. The next five tightening of prudential norms will their business. However, years would see the average profile occur and adoption of the Internathe average age profile and of staff worsening particularly with tional Standards and Codes will authe skill sets of employees banks going slow on fresh recruittomatically bring the prudential continue to remain unfament. Manpower planning would be norms on par with the international vourable to meet the chala major challenge before banks. best practices. lenges of change. The current indications do not
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P S Shenoy (CMD, Bank of Baroda): agement (ALM) system were introA distinction between Around the world, the banking induced for banks to address issues like commercial banks as produstry has witnessed a major transliquidity and interest rate risks. viders of working capital formation in recent decades. InWhile in the earlier years of refinance and financial creased penetration, consolidation, form, many banks witnessed erosion institutions as lenders of and international integration have in the net worth, gradually their profterm-finance has disapbeen the primary driving forces beitability showed an upward trend. peared and both types of hind this transformation. Developing Compared to the pre-reform period, countries are no exception. During the post-reform period is characterintermediaries have resthe past two decades, many of them ized by new products and processes ponded to the change by have attempted to move away from coupled with increased sophisticadeveloping competitive an earlier policy of financial controls tion as the users of banking services packages of financial (as part of a broader move towards a have become more discriminating. services covering longreduced role for the state in the econThere has been a clear shift towards term project financing, omy) to face the pressures of global those banks that are able to offer prodshort-term working capital competition. ucts and services in the most innovaloans along with assetIn India, the process of banking tive and cost-efficient manner. based financing, equipsector reform began in July 1991 trigTo cope with the pressures of ment leasing, and feegered by a balance of payments crigrowing competition, commercial based services. sis. Since then, there has been a probanks have adopted several initiafound change in the Indian banking tives to strengthen their business sector in the form of introduction of new players (foreign practices including, among others, greater product soas well as domestic private players) and instruments, phistication, increased customer orientation, improved easing of controls on interest rates and their realignment risk-management (particularly credit risk management with market rates, gradual reduction in resource pre- techniques), updated management information systems, emption by the government, relaxation of stipulations on greater focus on e-finance channels and diversification concessional lending, and removal of concessional re- into newer business areas. The competition was espesource window for financial institutions. A distinction cially tough for the public sector banks as the newly esbetween commercial banks as providers of working capitablished private sector and foreign banks had sharptal finance and financial institutions as lenders of termened their competitive edge. However, they have refinance has disappeared and both types of intermediar- sponded proactively to the challenges posed by the priies have responded to the change by developing com- vate sector banks and there has been a significant impetitive packages of financial services covering long-term provement in their performance in terms of profitability project financing, short-term working capital loans along and operational efficiency. with asset-based financing, equipSome of the proactive public secment leasing, and fee-based services. tor banks have now realized that in a Some of the proactive There has been a substantial consolinew business environment, they have public sector banks have dation of regulation and supervision. to be flexible enough to accommodate now realized that in a new Banks have gradually moved to inchanges and at the same time have business environment, ternationally acceptable norms for the necessary stability to retain the they have to be flexible income recognition, asset classificacore competencies to deal with enough to accommodate tion, and provisioning and capital adchange. In the post-reform environchanges and at the same equacy. Since November 1994, the RBI ment, the sophisticated clients choose has been undertaking an integrated the well-informed and responsive (attime have the necessary supervision of the commercial banks, tentive) banks. Therefore, the banks stability to retain the core financial institutions, and the NBFCs. now focus more on upgrading their competencies to deal with Effective from April 1, 1999, the final knowledge base in response to the change. guidelines on Asset-Liability Manprocess of continuous change. In the

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highly competitive environment, sucices, and leading-edge internet bankElectronic banking servcess is defined by the factors like cusing functions that provide a consistices, whether delivered tomer relationship, product differenently positive multi-channel experionline or through other tiation, brand equity, and technology. ence for the customer. This experience mechanisms, have spread Therefore, there have been continuis enabled by an integrated CRM sysquickly in recent years... ous efforts to evolve both organizatem built on an open IT infrastrucThe threat of new entrants tional structures and product offerture. The challenge before the Indian has led many banks to ings. retail banking industry is two-fold: offer e-finance ranging Further, as domestic consumpfocus and execution. Each bank must from basic to fully intetion demand has become the main sharply focus on its target marketdriver for economic growth, retail fiplace and rapidly execute its services. grated internet services. nancial services have started playing Electronic banking services, This trend seems to have an important role in India. In rewhether delivered online or through accelerated in India as sponse to this, there have been active other mechanisms, have spread well. efforts within Indian banks to be more quickly in recent years. The impact focused on consumers. According to of e-banking is not limited to industhe latest DSP Merrill Lynch report on the Indian economy, trial and the most advanced emerging economies. Even the changing demographic profile of India is poised to for countries with underdeveloped banking systems, epush household consumption spending to $510 billion banking offers an opportunity to leapfrog. Because eover the next five years from the current level of $250 banking is much cheaper since it lowers processing costs billion. This spurt in spending would certainly enhance for providers and search and switching costs for consumthe banks business for retail banking products such as ers providers can market banking services involving credit cards, personal loans, and hire-purchase lending smaller transactions to lower-income borrowers even in in the years to come. remote areas. Although online-only banking has been less In India, currently, there are two types of customers successful than was anticipated, with several online-only one who is a multi-channel user and the other who still banks running into difficulties, incumbent banks have relies on a branch as the anchor channel. The primary started to offer banking services electronically. The threat challenge is to give consistent service to customers irre- of new entrants has led many banks to offer e-finance spective of the kind of channel they choose to use. The ranging from basic to fully integrated internet services. channels broadly cover the primary channels of branch This trend seems to have accelerated in India as well. (i.e., teller, platform, ATM) phone banking, (i.e., call cenThe recent history of financial crises in the developtre, interactive voice response unit), and internet channel ing countries (especially the Asian financial crisis of 1997) (i.e., personal computer, browser, wireless). A retail cus- has clearly shown the critical importance of sound regutomer selects a bank based on two criteria convenience lation and supervision as a means of defending financial and relationship and would continue with a bank if it systems against distress and disorder. Though India has provides good service. A customer implemented various reforms since would leave a bank if its services 1992 to strengthen the prudential The recent history of finanmanifested errors, long wait, and inregulation and supervision of its cial crises in the developconsistent information. For custombanking system, we still have to build ing countries (especially ers who are multi-channel users, conrobust prudential system which can the Asian financial crisis of sistent information across all chanprotect our banking sector from sys1997) has clearly shown nels is the key requirement of modtemic crises. For prudential norms to the critical importance of ern retail banking. be effective in a developing country sound regulation and Banks in India will now have to like India, they need to be relatively supervision as a means of work towards a vision to have an ensimple, robust in terms of not being defending financial syshanced retail delivery system. Such a highly dependent upon the working tems against distress and system would include transformed of the other components of the prudisorder. branches, enhanced telephone servdential system, and easy to verify and
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enforce. Options for further reform may include higher Ranjana Kumar (CMD, Indian Bank): In any industry, capital adequacy standards, imposition of stringent re- among the various resources available, human resources strictions on insider lending, explicit rules covering in- are the most valuable. It is more so in the case of service tervention policy in distressed banks, and allowing reguindustry like banking where the human factor is vitally lators the discretion to impose speed limits on growth of important to render the expected customer service. Comcredit to high risk sectors. Furthermore, there should be petitive advantage can be achieved through harnessing greater use of the market for monitoring banks. The spread the potential available in the employees by creating a of e-finance also necessitates changes in public policy positive work culture and enlisting the support of all the toward financial services. This involves setting regula- employees to the organizational goals. To this end, the tory and other frameworks for contract enforcement, in- HR policy or HRM model should be so devised as to formation and privacy, and telecommunications, secu- promote mutuality mutual goals, mutual influence, rity, and public infrastructure for electronic transactions. mutual respect, mutual rewards, mutual responsibility, As regards governance, commercial banks pose etc. Mutuality will elicit commitment which, in turn, will unique corporate governance problems for managers and yield both better economic performance and greater huregulators as well as for investors and depositors. It is felt man development. that in the case of banks, the fiduciary duties should be The HR management has assumed strategic proporowed not only to shareholders but should be broadened tions on account of the following: to include creditors also. The bank directors need to take Changing business environment. into account solvency risk explicitly Consumer demands and the need and systematically when making for flexibility. The banks need to devedecisions. Impact of technology. lop robust internal control The primary achievement of the Changing organizational structures. systems, management process of economic liberalization The ultimate aim is to develop a wellinformation systems, and during the decade gone by is the trained work force, flexible and reearly warning triggers. macro economic stability complesponsive to customer as well as or.our trends are fundamenmented by financial stability. India ganizational demands. HRM, theretally altering the banking has, over the years, developed a profore, should focus on developing industry: consolidation, tective wall to insulate itself against skills, values, and behaviours consistglobalization of operathe turbulent international financial ent with a high level of personal eftions, development of new events. However, the weaker spot fectiveness in the following five technologies, and univerindicating vulnerability in the bankbroad areas: salization of banking. ing sector is the levels of NPAs which Technical skills which are specific are still not at the level of acceptabilto a job. ity by prudent international standards. This poses a major Behavioural skills which cover traits like motivation, challenge for the banking sector in the near future. Though judgement, resilience, and initiative as well as genersome progress has already been made on the legal front ic skills like communication, team working, and selfto effect faster recovery of NPAs, as the RBI governor has management. rightly said, the actual results on the ground will depend Business awareness which includes wider knowledge on early resolution of potential conflict between what is relating to the organization, its key products, competlegally possible and what is practical, reasonable, and itors, etc. feasible. The banks also need to develop robust internal IT skills which include understanding and exploitacontrol systems, management information systems and tion of IT systems to enhance business performance. early warning triggers. Four trends are fundamentally Risk management skills which relate to the identificaaltering the banking industry: consolidation, globalization of risk and mitigation thereof. tion of operations, development of new technologies, and With the above backdrop on HR management, some universalization of banking. Addressing the risks of glo- of the HR related issues which have great significance balized banking is going to be the major future challenge and which need to be addressed as part of the strategy to for Indian banks. achieve optimum utilization of manpower are discussed.

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With the introduction of technology on a large scale Authority and accountability go hand in hand. Auand also on account of the changing needs of the organithority without accountability is dangerous while aczation over a period of time, there arise situations when countability without authority is unjust and improper. the management has to think in terms of shedding the While it is necessary to have some checks and balances in excess baggage or aiming at right sizing in order to achieve the matter of delegating authority, what is more importhe correct age and skill profiles. Under such circumtant is the trust and faith that is being placed on them. stances, one of the best options available is an attractive Every employee who joins an organization wishes to VRS package. This would give an opportunity for those go up the ladder. Job satisfaction does not come by monwho are unable to cope with the demanding job profile etary compensation alone. Timely recognition of ones and lack the motivation to put in that extra effort required talent and contribution in the form of promotions and to meet the organizational demands to ease themselves placements would go a long way in sending the right out. signal to the rank and file. Any organization with a vision On account of introduction of certain advanced tech- for the future would have to not only draw its plans in nology, there would also be a strong case for recruiting terms of sales, market share, etc. but also have a plan for fresh talent with attractive pay and perquisites. How- the organizational structure with various key personnel ever, an organization cannot afford to go on inducting and their position. The employees should be encouraged talent without reviewing its existing manpower and how to draw a career plan of their own and put up their reworthwhile it is to continue with some of them in the quirements like training, exposure, etc. to achieve their changed scenario. plans. While appraising the individuUpgradation of skills through als, the management should evaluEven after equipping peoproper training and re-training is a ate their potential, performance, caple with the latest knowsine qua non for keeping the entire reer plans, and upgradation of skills ledge, the results will not workforce in perfect readiness to take required. This would give the true start flowing unless they up the challenging environment unpicture of a person and enable placare empowered to deliver folding everyday. Training is a coning him/her in the right place. The the vision of the organizatinuous process by which the employcareer plans of individuals should be tion. The vision of the ees are honed and their skills finethe bedrock on which the organizaorganization should be tuned. The training policy should tion builds its succession planning. exciting to the employees ensure that all the employees, withIndian Bank is a shining examand a source to unleash out exception, are given adequate ple of successful HR management. inputs and training to equip themBefore 2000, the bank was going their potential. selves to be on par with the best in through a traumatic period with conthe industry. Sometimes they may tinuous net losses for over six years, have to even unlearn their past knowledge and re-orient erosion of entire networth, adverse media publicity, conthemselves to the present. sequent low morale of staff, and a throttled decision Even after equipping people with the latest know- making process. ledge, the results will not start flowing unless they are To revive the bank, specific programmes for differempowered to deliver the vision of the organization. The ent segments of branches were designed and topics like vision of the organization should be exciting to the em- Credit Monitoring, NPA Management, HR Management, ployees and a source to unleash their potential. In a large Information Technology and Integrated Risk Management organization with a pyramid-like structure, the goals have were covered. Emphasis was laid on building and preto be achieved not only by setting targets for the various paring the second-line officers for leadership positions as wings and tiers but also by proper delegation of powers part of succession planning. A novel Vertical Integrato different authorities at different levels. Empowerment tion programme was conducted during weekends for means giving employees the necessary administrative branches which had been incurring losses or showing authority to do certain tasks like hiring, transferring, negative trends to inspire the entire team to redouble changing, training, etc. and financial authority to incur their efforts, re-focus their strategies, and reverse the some expenditure in the process. trend. In line with the industry trend, a VRS package was
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offered and 3,295 persons were relieved in a phased banking institutions to look forward to the future with manner to ensure smooth transition. By empowering the competence and confidence. Circle Heads on various credit, expenditure, and staff The landscape of the banking industry underwent related matters (including redeployment of staff to meet considerable changes during the last decade. The indusVRS contingencies), the shackles on decision-making were try witnessed: removed and the bank started to function with renewed Deregulation of lending and deposit rates. vibrancy and dynamism. Promotion process was revived Entry of new private sector banks. and conducted with greater objectivity and transparency Extensive use of technology for product innovation to motivate performers. In short, the bank attained a new and delivery. look mainly on account of the HR initiatives. It earned a Emergence of retail banking and new derivative net profit after a gap of six years and its performance products. improved substantially in 2002-2003. All the targets set Stricter provisioning and asset classification norms. under the restructuring plan were achieved to the satis Raising capital adequacy requirements. faction of Government of India, the owners, and RBI, the Requirements for better risk management practices regulators. and capital allocation of various risks. The future of any organization hinges on the effi- Increased disclosure requirements. ciency and effectiveness of its man management policies. Introduction of risk-based supervision. A transparent management with a high degree of corpoThe freedom from administered policies and govrate governance can alone motivate the workforce to keep ernment regulation in matters of day-to-day functioning performing at the highest levels of has opened a new era of self-governefficiency over a long period. To ance and need for self-initiative. AdThe future of any organizaachieve the employee loyalty to the herence to prudential norms on capition hinges on the effiorganization, the mutuality of objectal adequacy, income recognition, and ciency and effectiveness of tives described earlier should be deprovisioning has caused self-regulaits man management poliveloped. This can be successfully tion and has laid a road map to put cies. A transparent manachieved only if a proper communithe banks on strong foundations. agement with a high decation channel exists among the variThese measures have brought in gree of corporate governous tiers of the organization. People transparency in balance sheets of ance can alone motivate should be encouraged to share their banks revealing their strengths and the workforce to keep views, problems, fears, dreams, etc. weaknesses resulting in all-round performing at the highest so that they feel that they are being good governance in the financial seclevels of efficiency over a cared for and their emotions retor. long period. spected. We see a consolidation phase Attitude is a vital emotional trait taking place in the banking sector that triggers self-development and performance. The where stronger players are seeking growth opportunities success of the top management depends on its ability to through acquiring smaller players to increase their marget the people with the right attitude or bringing in ket share. Relaxation of FDI caps and voting rights would attitudinal changes in the existing team to form a cohefurther provide impetus to merger and acquisition activsive team that ceaselessly works for the goals of the or- ity. The emergence of new banks and the liberty for banks ganization. on mobilization and deployment of resources, recruitment, expansion/rationalization of branches, etc. couR M Nayak (MD and CEO, Lord Krishna Bank): Till the pled with changes in fiscal policies like gradual reducbeginning of nineties, Indian banks were led by hand by tion in CRR have thrown open a lot of challenges and the RBI. The process of integration of global markets and opportunities for the banks making them more vibrant. the resultant deregulation gave freedom to bankers to These developments have necessitated professional risk take decisions on many vital issues. Though, initially, the management and intense practice of good governance. banks were groping in the dark, this situation heralded Some of the challenges that the banks are facing tothe welcome development to reshape and reorganize day are:

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Changing needs of customers. their workforce to adapt to the The last few years have Coping with regulatory reforms. changed circumstances for survival. seen many important Thinning spread. Most of the existing players felt changes sweeping through Maintaining high quality assets. the need for business reengineering the Indian retail banking Management of impaired assets. to forge ahead in the growth path and sector. Instead of merely Keeping pace with technology to remain highly competitive in the funding productive purupgradations. changing banking scenario and took poses, Indian banks have Sustaining healthy bottom lines steps to redefine business strategy taken up funding personal and increasing shareholder valand design supporting organizaconsumption in a big way ue. tional structure. Banks are setting up alternative The last few years have also seen to meet consumer dedelivery channels to contain operatmany important changes sweeping mands. ing costs like off-site ATMs, internet through the Indian retail banking secbanking, telebanking, outsourcing, tor. Instead of merely funding procentralized transaction processing, etc. No doubt, the ductive purposes, Indian banks have taken up funding benefits of technology have brought a sea-change in the personal consumption in a big way to meet consumer outlook of modern banking. Maintaining transparency demands. The retail banking business segment has and market disclosure of critical information such as risk emerged as the fastest growing business. There is percepprofile, capital adequacy, and liquidity management have tible change in the Indian mindset and spending through made banking institutions more accountable and respon- borrowing is no longer considered a taboo. The very face sive to the well-informed customers, investors, and pubof banking in India has transformed and today banks are lic at large. Technology has become the key driver for one-stop shops to meet all the banking and financial needs enriching CRM and reduction of operating costs. Devel- of the consumer. oping foresight in anticipating changing risk-return relaInformed customers are in buyers market now. They tionships, pricing banks products appropriately by are demanding greater convenience over banking transputting in place efficient asset-liability management, and actions as they have a menu of access options to choose enhancing technical skills to operate modern technology from. Customer loyalty is a thing of past. are essential for banks to face the market challenges. To sum up, Indian banks have adopted better operaAll these welcome changes towards competitive and tional strategies and upgraded their skills. All these have constructive banking could not, however, deliver quick made the operational environment more volatile and chalbenefits to traditional bankers on account of certain lega- lenging. They have, nevertheless, withstood all these inicies of the past like high NPAs and reluctance/aversion tial challenges and have become more adaptive to the for embracing the change. The personnel lacked training changing environment. ysya and knowledge resources required to compete with in- P T Kuppuswamy (Chairman and CEO, The Karur V Vysya ternational players. However, the banks soon realized Bank): The Indian banking sector is faced with multiple that the future of Indian banking depended on the suc- and concurrent challenges such as increased competition, cess of their efforts to shake-off these accumulated past rising customer expectations, and diminishing customer legacies and carried forward ailments and how they re- loyalty. The banking industry is also changing at a phesuscitate themselves to avail the new nomenal speed. While at the one end, vistas of opportunities. The earnest we have millions of savers and inThe Indian banking sector efforts made by all concerned to advestors who still do not use a bank, is faced with multiple and dress the issues have caused positive another segment continues to bank concurrent challenges changes the enactment of SRFAESI with a physical branch and at the such as increased competiAct 2002 and introduction of VRS, etc. other end of the spectrum, the custion, rising customer exare initiatives worth mentioning. tomers are becoming familiar with pectations, and diminishThere is a visible change in the ATMs, e-banking, and cashless econing customer loyalty. mindset of the management of banks omy. This shows the immense potenboth in public and private sector and tial for market expansion. The expo
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nential growth for the industry comes from being able to profile of the corporates. The spreads over treasury yields handle as wide a range of this spectrum as possible. In have also contracted across the rating categories in the this complex and fast changing environment, the only last few years apart from the yield on government secusustainable competitive advantage is to give the customrities. er an optimum blend of technology and traditional servInstitutional customers may be regional cooperative ice. banks, small foreign banks, private insurance companies, Indian banking has traversed the vicissitudes of mutual funds, trusts, NBFCs, and provident funds. These change from an era of controlled regime to an era of lib- clients need access to places within the country where eralization, deregulation, and disintermediation. Post- their establishments have no network, foreign exchange 1991, the financial sector reforms ushered in a welcome market, money market, and services related to managerelief to the consumer. Entry of new private sector banks ment and processing of receivables and payables. with their state-of-the-art technology, sleek organizational The expectations of the high net worth individuals set-up, customer-focused approach, and competitive are different and this has led to the creation of personal spirit made deep inroads into the bastion of public sector banking divisions. This class of customers typically exbanks and consumers sensed the difference. Changes pects services at their doorsteps and investment and have been fast and swift and the Indian banking indusadvisory functions from their bankers. This has led the try, to its credit, has adapted itself appreciably to the fast bankers to turn to distribution of insurance and mutual changing environment. Banks today operate in a buyers fund products in a bid to woo these clients into their fold. market and not in sellers market as The sophistication of corporates was the case a decade ago. The main and high net worth individuals has The expectations of the beneficiary of these changes is the led the banks to cater to their expecconsumer have been growconsumer who has never had it so tations of availing banking services ing. Broadly, these expecgood. over multiple delivery channels. This tations are swift service With technology occupying a has led to the emergence of internet with minimal response pivotal role in delivery of banking and mobile banking. time, efficient service services, the expectations of the conRetail consumers (other than delivery, tailor-made and sumer have also been growing. high net worth individuals) hold a value-added products to Broadly, these expectations are swift lot of potential. Realizing their imsuit specific needs, hassleservice with minimal response time, portance, banks have retail banking free procedures and miniefficient service delivery, tailor-made divisions. Retail consumers may be mum transaction costs, and value-added products to suit further sub-divided according to a vaand pleasant and personalspecific needs, hassle-free procedures riety of parameters such as occupaized service. and minimum transaction costs, and tion, income, age, and geographical pleasant and personalized service. As profiles. The expectations of these different classes of customers have different expectations consumers differ according to their profiles. Agriculturfrom the banks, we need to adopt a segmented approach ists, small traders and businessmen, and small road and to study the expectations of the consumers. For this pur- water transport operators expect the banks to extend pose, consumers may be broadly categorized into timely and hassle-free credit albeit at a higher rate of corporates, institutional clients, high net worth individuinterest. als, and retail consumers. Salaried individuals expect two-wheeler loans, conCorporates typically expect excellent cash manage- sumer credit loans, and housing loans. These middle inment services (CMS) from the banks. With the onset of come groups have suddenly become important for banksoft interest rate regime, they expect loans from banks at ers as NPA levels are perceived to be minimum in this sub-PLR rates as PLR rates have not moved down the class of clientele. Housing loans with slashed interest rates way the interest rates in the system in general and on from various banks have become the order of the day deposits in particular have fallen, given the high operatwith both public sector banks and private sector banks ing costs of the banks in India and their growing NPA wooing them alike to their fold. As these customers do profiles. Loans are priced in accordance with the rating not mind spending albeit out of borrowing, credit cards

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come handy for the banks to cater to this clientele. how far the investment is worth it. The key to this probThe only class of customers that has a grouse against lem, and a driving force behind the development of CRM, the banks must be pensioners and senior citizens who is that new technologies can transform the technique of expect the banks to pay better rates of interest on their cultivating a loyal customer base. The retail sector has deposits. Given the current soft interest rate scenario and been at the forefront of using such technology. squeezed margins, banks, at present, find it difficult to As already noted, banks have to profile their cusmeet these expectations. However, it has to be borne in tomers and segment them based on age/life cycle stage, mind that the bank deposits offer highest safety and li- income and occupation, needs and preferences based on quidity which cannot be matched by alternative avenues customer feedback and market research. They have to of investment. analyse the different financial needs occurring across Cross-selling is a sales promotion technique in which various life cycle stages and, accordingly, bundle out the manufacturer attempts to sell a related product to the banking products to cater to their needs so as to sustain prime product that the consumer already uses. This would relationships over time. make it more convenient for the customer to do relatedFor managing relationships with corporates, corpoitem shopping. In simple terms, cross-selling is the mar- rate banking divisions are in place. Institutional banking keting of many products to a customer according to his is viewed as a separate focus customer segment. Instituvarious needs. It is all about selling more number of prod- tional clients such as cooperative banks, foreign banks ucts to the same customer. The additional cost incurred with a small network of branches, mutual funds, trusts, per product sale is nominal in case of existing customers. NBFCs, and provident funds must be managed with inCross-selling happens only when we thoroughly stitutional banking team. understand the banking needs of the customer. This idenBanks need a focused marketing approach as wartification of needs is a function of the degree of customer ranted by the segment to which it caters to. Basically, the relationship. The number of products marketing plan of banks should fosold per customer is defined as crosscus on brand building and individual The only class of customsell ratio. Many banking companies product marketing. This must be ers that has a grouse are losing significant revenue by not achieved through appropriate media against the banks must be leveraging cross-selling opportuniplanning. ties. Banks are not influencing buyThe critical factors for successpensioners and senior ers purchasing decisions while they ful marketing encompass good mancitizens who expect the shop. This is happening because they agement of branch-based distribubanks to pay better rates of are not providing their counter staff tion, minimal response time, interest on their deposits. with relevant information to crossproactive and polite service, empowsell as well as adequate training/ ered staff with good product knowlawareness to enable employees to quickly and easily cross- edge, ability to address customer queries, better crosssell the companys full line of products. Internal market- selling of various products to existing clients, effective ing is one of the time-tested tools of successful cross-sell- lead management system for tracking prospects through ing. This can be done at the counter and the staff at the staff referrals, tele-sales, direct mailers, local campaigns, counter needs to be very attentive. Cross-selling can be and customer referrals. Profiling of potential customers at the individual level and at the institutional level as is done by utilizing industry-specific/trade-specific inwell. formation base. The trend for companies to shift from a product-foAt the macro level, the success of marketing can be cused view of the world to a customer-focused one has monitored by gauging the increase in market share of the been developing for years as products become increas- bank. At the individual branch level, the achievement of ingly hard to differentiate in fiercely competitive mar- physical targets can be reviewed. kets. The better you understand your customers, the more The banking sector in India has undergone signifisuccessful you will be in meeting their needs. But, adoptcant transformation in the past few years. A conducive ing a truly customer-focused approach can be a resource- macro-economic environment, the landmark foreclosure intensive business, and many managers have questioned law, falling interest rates, ample liquidity in the system,
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the fast spreading technological revoof Rs 0.5 million per dwelling unit The numerous challenges lution, and huge potential in the retranslates concisely into a business faced by banks such as tail segment augur well for Indian level of over Rs 100 billion. increasing competition, banks. However, the numerous chalRetail finance is now being used pressure on spreads, and lenges faced by banks such as increasnot just for essentials like a house or systemic changes to align ing competition, pressure on spreads, a car but even for cruises, holidays, with international standand systemic changes to align with etc. Travel, in particular, has emerged ards have necessitated a international standards have necesas a major segment. re-evaluation of strategies sitated a re-evaluation of strategies In the developed markets, every and processes in order to remain comcorporate customer could be assigned and processes in order to petitive in this dynamic environment. a skilled and experienced officer who remain competitive in this The challenge is how to service can handle the day-to-day banking dynamic environment. mass-market customers profitably. It requirements and also act as a hub should be the business imperative to for any specialist services the corpounderstand a customer s expectations and appetite for rate may want to call on. With the support of the officer, risk. The developments in the sector should improve the a suite of products tailored to suit the companys particucost structures of the banks. The internet has become an lar financial requirements could be put in place. Thus, accepted sales channel for financial services products. the banks should be prepared to offer a range of tailored With a population of over three billion people, the 23 services to suit specific business requirements. countries of the Asia-Pacific region represent a rapidly Bancassurance is not meant to make the bank a mere growing and lucrative segment of the global internet vending machine of insurance products. To make it more market. According to the market research firm, Yankee relevant, the banks will have to develop the skills and Group, Asia will have 374 million net users at the end of take up the challenges to exploit the opportunities and 2005. As per the International Data Corporation, the Asia- multiply their revenues. For instance, a banks insurance Pacific region now accounts for about a third of the worlds team should provide a specialist service and be prepared total users. to work with the corporates to identify insurance requireThe incremental credit growth for working capital is ments and arrange comprehensive cover to protect their likely to be low as corporates restructure, reduce inven- assets, liabilities, and cashflow. This might help the tories, and become more efficient. Credit growth will thus corporates discover that their current insurance is inadhave to come from increasing trading activity, retail de- equate or that they are paying excessive premiums. Spemand (as individuals become less debt averse, the younger cial insurance products for a selected pre-approved cligeneration is more willing to take risks), and infrastrucent base of the bank need to be designed and aggresture investment (road, power, oil and gas, and upgraded sively marketed. equipment to meet environmental norms). A key driver of growth is innovation that surprises Retail banking is the emerging phenomenon in the and delights consumers with new, differentiated, and banking sector. The home loans alone account for nearly relevant benefits. India will shortly become home to the two-third of the total retail portfolio of the bank. Accord- second largest number of elderly persons in the world. ing to one estimate, the retail segment is expected to grow The population of our elderly, at present estimated at 76 at 30-40 per cent in the coming years. million, is expected to increase to 100 million in 2013. Housing finance is poised to register an unprec- Therefore, banks should focus on unmet financial needs edented growth rate as the tax incentives are made more of the pensioners and senior citizens. attractive. A well-conceived business As per the census records, only plan is bound to be a sure-fire hit in 30.1 per cent of the rural households Housing finance is poised a country where the current urban are availing banking services. One of to register an unpreceand rural housing shortage is pegged the reasons may be non-availability dented growth rate as the at 7.2 million and 13.2 million units of bank branches in the neighbourtax incentives are made respectively. Even a 3 per cent share hood. The existing rural branches of more attractive. in urban housing demand at the rate many of the big banks are being

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closed as they have become unviable. institutions have to come out with Banks need to think outBanks need to think out-of-the-box low-cost, self-service solutions/ of-the-box where box is where box is the representation of all ATMs. The government and the the representation of all the tested, tried things that always RBI should actively support such the tested, tried things that worked in the past. They would have research efforts. Here, it is worthalways worked in the past. to think outside the boundaries of while to mention that the adaptThey would have to think current practices, products, services, ability of the Indian rural populaoutside the boundaries of organizations, and industries as they tion to high-tech devices is one of current practices, profall behind the treadmill of faster and the fastest in the world. A wider ducts, services, organizamore rapid pace of change. The new dissemination of information on business environment thus puts a technologies and products to the tions, and industries. premium on creativity and innovaIndian banking industry by the retion more than ever before. This calls for innovative so- search institutions could benefit the banking institulutions. tions. This cross-pollination of ideas would mutually Banks may have to go for mobile banking services enrich the banking and the technology development for a cluster of villages. Alternatively, technological processes.

In this world of casual carelessness its discouraging to try to keep our morals and standards and our ideals high. We are ridiculed and laughed at by the smart sophisticate who proclaims in brittle banter that such things are out of date but no life is worth living unless its built on truth; and we lay our lifes foundation made of faith and love and praying and remember that ideals are like stars up in the sky. You can never really reach them hanging in the heavens high but like the mighty mariner who sailed the storm-tossed sea and used the stars to chart his course with skill and certainty you too can chart your course of life with high ideals; and love for high ideals are like the stars that light the sky above. You cannot ever reach them but lift your heart up high and your life will be as shining as the stars in the sky. Helen Steiner Rice

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