y Post Graduate !:::!: %.. e UTI ag i : Lista f Le eleg) Scanned with CamScannerRETAIL BANKING Retail banking has brought in a drastic make over in the overall banking scenario in India. The exceptional improvement in the banking system in India is a result of strong initiatives taken up by both the government and private companies. Retail Banking has been the new focus of the banking industry across the world. The emergence of new companies and their rapid growth has been the most important contributing factor behind this resurgence in Retail banking. Changing lifestyles, fast improvement in IT, other service sectors and increasing levels of income have contributed to the growth of retail banking in countries like India that are developing at a good pace. In India the Retail Banking scenario has been the market changing from a seller's market to a buyer’s market. Retail banks offer services like account opening, credit card, debit card, ATM, internet banking, phone banking, insurance, investment, stock broking and so on. Retail banking refers to the dealing of commercial banks with individual customers, both on liabilities and assets sides of the balance sheet. Fixed/current/saving accounts on the liabilities side, and mortgages loans (e.g, personal, housing, auto and educational on the assets side, are the important products offered by banks. Related ancillary services include credit cards or depository services. Retail banking refers to provision of banking services to individuals and small business where the financial institutions are dealing with large number of low value transactions. This is in contrast to whole sale banking where the customers are large, often multinational companies, governments and Eovernment enterprises and the financial institution deal in small number of high Value transaction. Retail banking can be defined as-~ “Retail banking is typically Mass ~ market banking where individual customers use local branches of larger Commercial banks. Services offered include savings and checking accounts, rtBages, personal loans, debit cards, credit cards and so”. Scanned with CamScannerOverview of Banking in India india has a robust banking system; it has 27 state owned banks, 21 private banks and over three dozen foreign banks, regional rural banks and urban cooperative ks. Put all of them together and India has over 1,700 banks of various descriptions. fo F The origin of banking in India can be traced back to almost the Vedic period. puring the Vedic period, banking system was found in India in an unorganized manner. The transformation from pure money lending to proper banking appears to have taken place before the times of Manu, Manu, a great Hindu jurist, had devoted a section of his work explaining the deposits and advances and he even laid down certain rules on rates of interest. ‘The modern Indian banking industry is traced as far back as 1806 with the establishment of Bank of Bengal. From 1906 to1911, several banks were based on the principles of the Swadeshi movement. ‘The movement inspired Indian businessmen and politicians to set up banks for the Indian community and many new banks were launched to promote trade and finance in communal groups. Some of the prominent ones among these are Bank of India, Corporation Bank, Bank of Baroda, Indian Bank, Canara Bank, and Central Bank of India. The first joint stock tank was set up in 1770 at Calcutta under European management by the name of ‘Bank of Hindustan. Thereafter, East India Company established three ‘Presidency Bank’ in India — ‘Bank of Bengal’ (1806), ‘Bank of Bombay’ (1840) and ‘Bank of Madras’ (1843). The first purely Indian joint-stock bank was the ‘Oudh Commercial Bank’ which came into existence in 1889. Bank of Bengal, along with is sister banks, Bank of Bombay and Bank of Madras, set up by British East India Company, merged in 1921 to give birth to Imperial Bank of India, now known as State Bank of India. On the basis of recommendations of the Hilton Young Commission in 1926, Government passed the Reserve Bank of India Act, 1934 to ‘slablish a central bank in the country a share-holders’ bank. Reserve Bank of India was established in 1935. vitially, it was established as a private shareholders’ bank with a fully paid-u *5 crore. In 1949 the Banking Regulation Act "as passed and the Re ia was nationalized on 1.1.1949. This Act & sive erve Bank of India and the 7 Banking Regulation act reforms in the Indian d to be et up Scanned with CamScannerTHE COMPANY - CITI BANK DLC te eet Dee TAL Con a Tae ee Tie ds er et eee eee Puen aia ere Rea Crea f ary rie citigroup Citi in India + Citi - a premier local financial institution. * Citi - the single largest foreign direct investor in the financial services industry in the country. * Acustomer base of over — 1500 large corporates and multinationals, ~ 2500 small and medium enterprises, — 40,000 asset based financing clients and ~ 7 million retail customers. It offers a comprehensive suite of products and services to both commercial and retail clients across all economic segments and lifecycle stages. Scanned with CamScannercertigroup! Citibank Citibank is the consumer and corporate banking division of leading financial services company Citigroup. The company has operations in around 1,700 locations, in more than 140 countries worldwide. Citibank offers the following products and services — Banking services — Credit cards — Mortgages, Loans — Investments = Insurance ‘Small business services Corporate/institutional services ~ Asset management — Government services — Private banking ee Facts about Citi India + Cash management throughputs at Citi India equal 40% of India's GDP. Citibank India's e-business portal is the most visited Indian financial site. CFIL has financed over 130,000 trucks in India. Citigroup Global Services, is one of India's largest BPO service providers and services Citi operations in 36 countries. Citi - the first company in India to introduce stock options for its employees. Citi - the first financial institution to export software services from India. Citi has provided core funding of Rs. 15.4 crore to the Indian School of Micro Finance — the first such school in Asia. Scanned with CamScannerawe 1.1 Market Size and Characteristics I today’s dynamic world banks are inevitable for the development of a country. y iyotal role in enhancing each and every sector. They have helped Banks play @ P! ae pring @ ‘draw of development on the world’s horizon and developing country like India is nO exception. s fulfils the role of a financial intermediary. This means that it acts as a vehicle g finance from those who have surplus money to (however temporarily) have deficit. In everyday branch terms the banks channel funds from hose accounts are in credit to borrowers who are in debit. Banks fu for movin; those who depositors W Without the intermediary of the banks both their depositors and their borrowers would have to contact each other directly. This can and does happen of course. This is what has lead to the very foundation of financial institution like banks. ‘The different products in a bank can be broadly classified into: Retail Banking and Trade finance operations are conducted at the branch level while the wholesale banking operations, which cover treasury operations, are at the head office or a designated branch. : Scanned with CamScannergi Negotiating for Loans and advances ‘ 5 Remittances ; ook-Keeping (maintaining all accounting records) epeceiving all kinds of bonds valuable for safe keeping. Trade Finance s, collecting of bills of exchange, ecurities. n shares, debentures, etc. half of constituents. local authority. They arrying out issue of provides a iduals, short- js and ‘Scanned with CamScannersector Snapshot — India Banking Sector peposits (in USD billion) ¢ CAOR: 7.55% » eau THE BIG PICTURE ~ sans with ghost noe-prforming assets (PAS) uel $C: Grss NPA 8) Non ‘Copal adequacy lve of top 5 PSU banks vs op 5 private banks (BASEL 3) ‘Sut ak ot 1233 sora nk 15 615 584 564 an of Bros us s Bark 76 Pub onl Ba 1152 ane Bank fda Bore 1553 “ggRY Gey Anda nan 0B Bank (orara Br 1023 Bark » ‘trot roth ftp 5 publ stor banks v tp 5 pate 16778 150252 | AS a me ankotleds Canna Bank AFC Bk - Setar Das se ay = 2 « Geacce ~ ee = Scanned with CamScannerChart 2: Market Share of Bank Groups by Deposits 100% 52 7 4.3 80% ues 82 60% 40% 20% 0% FYOS FY12 mPublicBanks Private Banks &® Foreign Banks Source: RBI Market share of banks in India 2000 2013 2025 anks 75 161 é ! storbanks 12.3 a torbanks EN 80.2 ae EO el Scanned with CamScannerMarket Shares Financial Sectors % om Banks * Insurance Companies « Non-Banking Financial Institutions « Mutual Funds & Provident And Pension Funds METLOM, Nash gSrucm Repo ty-0 Sharan Market Share of Banks in Credit Cards mHOFC m8 =icict mcr max OTHERS Scanned with CamScanner1.2MARKET TRENDS piometric Authentication Tools to c ae usin Ombat Identity Theft tand ie , d a" F will help banks to combat identity theft, mak , make uthentication and enhance the customer experience etl a fe gg more SECUTe, if rsx spiground tnessing a paradigm shift in the way their consumers interact and sesact with them in this hyper-connected world with the increase in sguization of processes and diverse digital channels ssincreased digitization and connectivity has paved the way for many entry sintsin the system, which have made banks more vulnerable to attacks TARY sganks are wit Tend Overview i Bi i hoe Siac authentication methods use unique biological or behavioural traits to es customer's identity 4 2 ts etl uniqueness of biometrics, it can pr a conventional security systems: mers ee using a fingerprint scanner on their mobile phones for their “ang. (958n in to the mobile banki shia te ovide added security and reduce plementation of e technology and such provisions m customers Scanned with CamScanner2 Banks Banks are seamless stand out Backgrour *To kee] adapt inn. customers * Custom, Service, mi * Banks ar delivering Trend Over *ARis the integrat “The al rie} ‘Souce: Caogern Franca Senees Arayee 2016 Fine-Grained Classifi ame * tric Authentication Methods ide Enhanced Customer Experience it will enable them to deliver le an opportunity for banks to anks are trying to 1g solutions for their rtain quality of novative ways of nts, er ‘Scanned with CamScanner« Visually appealing applications of AR can providing location-based offers, ATM locate doa property search, or make payments, enhance customer experience by Ors, talking to a relationship manager, h the Increase id an increase in incidents of it Security systems. Scanned with CamScanner« The global cybersecurity market is expected to grow from $122.4 billion in 2016 to $202.3 billion at a CAGR of 10.6% by 2021: — The financial services industry is set to witness the highest growth of 11.6% CAGR during the forecast period CYBERSECURITY Fated ont } beers ‘uness isto meets cbr atacts n2015 cyorscury tor 220 cyber xs theo Inthe euteated cot thveat in the franca abate services industry sepa ‘Source: Cangemini Bnancial Services Analyss, 2016; Systemic Risk Baroreter Results Overview, DTCC, Qi £2016; “Oyber Crime Gosts Projected To Reach S2 Tillon by 2019", Steve Morgan, Forbes, January 17, 2016, ‘accessed 2016 at steveroxgar/2016/01/17/cy- y9/rECBSc2"3bOCe 4 There Is a New Shift in the Banking Business Model where Banks will be Acting as a Platform to many FinTech Firms. Banks as a Platform (BaaP) is a complete shift in the banking business model, | directly linking with FinTechs for their innovative solutions, enabling them to _ provide a one-stop shop for customers. financial Scanned with CamScanner+ Banks have a substantial customer base, trust, stability, access to a large amount of capital, and proven experience in handling regulation requirements, along with a way to leverage agility and deliver the ability to innovate with technology expertise from FinTechs to provide a broader assortment of solutions and become a hub of distribution + The platform will provide customers with a one-stop shop, from which they will be able to access traditional banks for their core offerings, along with new solutions that are offered by FinTech. BANK AS A PLATFORM 5 Banks Are Looking at Cognitive Banking to Provide an Edge over Competitors Artificial Intelligence (AT) and cognitive technology enable banks to speed up-its digitization, es, ee customized products and services. amount of data Data, full Scanned with CamScannerif hnology that p care in the need of tec gy that can help cope wit! punks ie with competitors and ful Il customer Seem ee clullenecs ok rend overview ognitive technologies are being applied in the banking industry maink: vad customer Saat weit eee identity authentication, anti-money y unde g, compliance, ris se ‘ol, an other Operational aspects i Thas started playing @ major role in customer service activities: “customer service through chatbots or Voice assistants has already been siopted by several banks including Santander UK, Atom Bank, Swedbank, and pigibank2 thereby enabling them to address customer requests to a greater extent _ fyen for physical channels such as branches, banks are experimenting by adopting humanoid robots that can not only greet customers but can also have conversations with them “ |tisnot only customer self-service channels where AI is finding adoption, banks such as RBS have launched advanced AI to enable its staff to answer customer queries more efficiently. + Unlike prevalent analytics being used by banks, AI has self-learning capabilities, making it possible to process varied types of data, thereby enabling banks to offer ielevant and personalized solutions and services to their customers. yAtand ¢ COGNITIVE BANKING Scanned with CamScanner1.3 Structure of Indian Banking System panking Segment in India functions under the regulatory, central bank. India follows a bank-b; i i pul layered network consisting of scheduled and senna system with a goheduled and non-scheduled banks eae xe ee of: large state-owned banks, old private bank: jegional rural banks, cooperative banks, non- and development financial institutions. umbrella of Reserve Bank of India - ;, Reserve Bank of India (RBI) A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank. Such a bank does not deal with the general public. India’s central bank is the Reserve Bank of India. Reserve Bank of India (RBI) was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Though initially RBI was privately owned, it was nationalized on January 1, 1949. The RBI is the apex monetary institution in the money market which acts as the monetary authority of the country. The RBI is an organ of the government which, by reason of its operations, influences the working of financial institutions of the country. (Reserve bank of India act, 1934, as modified up to Fel y iesportant steps « se banks which have been included in the Second id these banks are entitled to ides only those banks in this 42(6) (a) of the Act. On arious credit control e through the length ank of " means a Scanned with CamScannerpanking company as defined in clause (c) of section 5 of the Banking Regulation ‘act, 1949 (10 of 1949), which is not a scheduled bank". (J. Winston, 2015) public Sector Banks (SBI and associates + Nationalised banks) control ti-75%e of the total credit and deposits businesses in India whereas Private § oa panks around 17-18%. This is how the banking industry works, Aegulaterysequicement Ccasneserve wth R8:(CRR.5%) Statutory que Assets [SUR 285) Det arco card, map cad, Current savings, demata/Cs, ‘symaeaton serves Mercuet tanking Serves ‘took a few important steps to make the Indian Banking industry hy. This includes de- tion of savings rate, guidelines for implementation Norm III. Since March 2002, Scanned with CamScannerCEL 4 ers ‘Scanned with CamScannera 1.4 COMPETITIVE ANALYSIS (characteristics Of Competitors Major Banks in India 1, State Bank of India: SBI undoubtedly is the leading bank in India when it comes to number of pranches, ATM’s, net profits, total assets managed, etc. With an employee base of close to 3 lakh people SBI commands 20% (approx) of the Indian banking sector. The bank has over 17,000 branches with more than 27,000 ATM's. The bank manages assets worth more than 390 billion USD. 2. ICICI Bank: ICICI is the second in the list when i es to quantity of assets managed by up ICICI is ahead of SBI but ches, 11200 ATM’s and over rth 99 billion USD. ‘ket capitalization of the bank is bank has over 5800 90.9 billion USD. Scanned with CamScanner6. HDFC Bank: If we prepared this list according to the market cap then HDFC would have been the number one bank in this list. Well according to assets managed the bank is at the 5th position. The bank has over 3200 branches, 12000+ ATM’s, Net Profit of 1.1 billion USD. The assets managed by this bank are valued at 66.7 billion USD. 7. Canara Bank: The bank has about 3200 branches with over 4000 ATM’s. The bank employees about 44,000 people. Assets managed by the bank are valued at 61 billion USD. 8. Axis Bank: Axis bank comes 7th in the list and 3rd in the list of private sector bank. The bank has 2225 branches, 12000+ ATM’s, 40200 employees . The bank manages assets worth 54 billi yn USD. The bank’s net profit is 1.5 billion USD 9, Bank of India: the. ir BOI has over 4500 branches and makes a profit of 400 million USD. 10. IDBI Bank: The bank has h i poe ATM's. The bank employees al ) worth 42 billion USD. Scanned with CamScannerTOP FIVE COMPETITIVE BANKS bia) :) (Gs FOREIGN + SBI + HDFC Bank + Bank of Baroda + ICICI Bank + PNB + Axis Bank + Canara Bank + Kotak Mahindra + Bank of India + Indusind Bank 1.5 Industry Analysis Metrics — To analyze the health of o the industries SERVICES OFFERED BY BANKS The services offered by banks can be broadly classified into four categories. age? 1. Payment services: The Payment service is the backbone of the entire money flow in an economy. Previously the payment system was supported by cheques, demand drafts etc., which haye now been replaced with direct online money transfer with the evolution of technology. wate) nines : 2. Financial intermediary: This is one of the oldest functions of the bank which m customers and ding these funds to i and will continue h were launched ivestment th management and Scanned with CamScannerxing services. These services generate income for the commercial bank in the f commissions etc., which is also termed as non- fund income for banks. form 0 4, Ancillary Services: other services that the banks offer to the common men along with the necessary banking services. These ancillary services form a very minuscule ofthe services offered by the banks. Typical ancillary services include safe deposits Jockers for gold, cheque pick up facility, door step banking etc. 84 Traditional services offered by Banks New Services Offered by Bank TRADITIONAL SERVICES : |, Offering savings deposits 2. Currency exchange transactions ‘Scanned with CamScanner‘Scanned with CamScannerLTC] Customer Segments Revenue Streams www_businessmodelgeneration.com Scanned with CamScannerROLE OF TECHNOLOGY | sector has embraced the use of technology to serve its client’s faster | a Ine ad ‘nore with less. Emerging technologies have changed the banking » @ from paper and branch based banks to “digitized and networked banking pst Unlike before, broadband internet is cheap and it makes the transfer of Bs 5 and first. Technology has changed the accounting and management Be of all banks. ‘And it is now changing the way how banks are delivering gst customers. However this technology comes at a cost, implementing ies to their fs ry has been expensive but the rewards are limitless. this techinolOg | E:banking: This enables the bank to deliver its services easily to its high end customers. To make the system user friendly to all clients, banks have used a Graphical User Interface (GUD), with this software , customers can access their bank details on their own computers, make money transfers from one account to another, print bank statements and inquire about their financial transactions. Another technology used by banks to exchange data between the bank and clients is called Electronic Data Interchange (EDD); this software can be used to transmit business transaction in a computer-readable form. So the client on the other end will be in position to read the information clearly. formation reaiiis ¢ eh + NRI Banking Services: This technology has been embraced in countries like India, USA, UAB, just to mention but a few. Since many people 80 abroad to ‘ork, they have a need of supporting their families. So technology has made it simple for them to to their loved ones easily. Technology. bar, phyed an account with josit money On money can be eive or send Scanned with CamScanner| . Plastic money: Credit cards or smart cards like visa electron have made the banking industry more flexible than before. With a credit card , a customer can borrow a specific amount of money from the bank to purchase any thing and the bank bills them later. In this case, they don’t have to go through the hassle of borrowing small money. Then with “Smart Cards’ like visa electron , a customer can pay for anything using that card and that money is deducted from their bank accounts automatically, they can also use the same card to deposit or withdraw money from their accounts using an ATM machine. Self-inquiry facility: Instead of customers lining up or going to the help desk, banks have Provided simple self-i inquiry systems on all branches. A customer \eir account balance, or to get their bank nabled anytime banking, because D deposit money on their accounts. al areas improve on their culture of u Services: This enables banks to o another at ease. For example, if a i cuted branch, hey can still get details arge sums of money s which might arise ‘Scanned with CamScannerPorter's Five Force Analysis For Indian Banking Industry The industry profitability being determined by competition in two markets: product markets and input markets. In the product market the services provided by the banks and while analysing the input part mainly looked into the government of India’s and mainly RBI’s policies and regulations. = For depoot substiuies include Investment in old, rel estat, cequty ete + For advances substtutes include, ‘bonds, IPOIFPO', ee prea ‘Nascent debt market & volatile stock market, are lose opted = Alpresent publesector banks, led by = ‘SBI associates, conto! 77 3 pes ‘cent ofthe banking secto: = Banks are an indiepenaible source of + Rivay is much aggressive fund in Inia ‘metropottan areas = taauing of new tcenses wl! crease compelive rivalry in rr! areas over ‘medium to tong term © Positive impact © Never! impact © Negative impact Rivalry among the industry: Rivalry in banking industry is very high. There are so many private, public, co- operative and non-financial institutions operating in the industry. They are fighting for same customers. Due to government liberalization and globalization policy, banking sector became open for everybody. So, newer and newer private and foreign firms are opening their branches in India. This has intensified the competition. The factors that have contributed to increase in rivalry are: Number of players: There are so many banks and non-financial institutions ‘or the same pie which has intensified competition. ghting Scanned with CamScannerHigh market growth rate: India is seen as one of the biggest market place and owth rate in Indian banking industry is also very high. This has ignited the competition. Low switching cost: Customer switching cost is very low. They can easily switch from one bank to another bank and very little loyalty exists. Undifferentiated services: Almost every bank provides similar services. No differentiation exists. Every bank tries to copy each other’s services and technology, which increases the level of competition. Low government regulations: There are low regulations to start a new business due to the LPG policy adopted by India post 1991. So, sector is open for everybody. ny iewe copeniiive bak sitors. These are those people who have excess money ind safety. In banking industry suppliers have low lowing are the reasons for low bargaining power of suppliers: os ae a Nan eo ople who prefer low |. Bank is best place for safer than other Scanned with CamScannercol are numero, a US, . anking i a i aining powe. * Suppliers ea ae industry’s suppliers are not concentrated. egligible portion to offer. So, this reduces their collectively j pgs wo Y invest in other pee uaied then they can bargain with banks or nen ‘ 'tisky projects. fo “ration: Forward ; aw people now about this. an nte; . Only e Sration is possible like mut , room eu is. 0 mutual funds, but only di 2 eee people can forwardly integrate where as ware about these alternatives. jargaining power of customers: {ustomers of the banks are those w inks. Customers have high bar, power of customers: vho take loans, advances and use services of gaining power. Following are the reasons for high number of players: Customers have very large number of alternatives. There so many banks, which fight for the same pie. There are many non-financial titutions which have also jumped into this business. There are foreign banks, rivate banks, cooperative banks and development banks together with the ized financial companies that provide finance to customers. These all e preferences for customers. Cost of switching from one bank to another is low. Banks are account and other types of facilities. They are free to are becoming lower with internet banking “ Joyalties are harder to retain. switching cost: providing zero balance 3 t any bank’s service.Switching costs ining momentum and as aresult consumers ed service: Banks ide merely similar service: There is not muc! ee ided Wy aifferent banks. So, bargaining power of es. ec! be charged for differentiation. utes: . jal sector is i saw products inclu nt house is that the a bank it is con yf return with using increasing rapidly. The threat de credit unions and fees that the sidered a Scanned with CamScannerjavestment he i Es like Eee than a bank. There are other substitutes as well for al estate ete. ds, stocks (shares), government securities, debentures, gold, real estate etc. so, there is a high threat from substitutes. Threat of new entrant: Barriers to entry in banking industry no longer exist. So, lots of private and foreign banks are entering in the market. Product differentiation is low and exit is difficult. |So, every bank strives to survive in highly competitive market. So, we see intense competition and mergers and acquisitions. Government policies are supportive to start a new bank. There are less statutory requirements needed to start a new venture. Every bank tries to achieve economies of scale through use of technology and selecting and training manpower. ‘Scanned with CamScannerBANKING change due to the advancement se multiple changes happening ch is trying to be organized flexibility, and decontrolled interest rate and ‘or foreign exchange in banking market, The at © industry coupled with decontrol in the interest rates has led to airy of a number of players in the banking industry and thereby reduced corporate edit off which has resulted in large number of competitors battling for the same pie. Modified New Rules: As a result, the market pl: ales of the game, Banks are transforming to un channels with lucrative Pricing and freebees to offer. New channel yweads, demanding customer's better service, marketir competition, defined new rules of the game pre: wientation diffused customer loyalty. Bank has led t offerings catering to various customer Segments, specif ace has been redefined with new niversal banking, adding new iency. Need for new ies of innovative product ly retail credit, ‘ciency: Excellent efficiencies are Tequired at the banker ‘ulance between the commercial and social consideration: The Bank needs to seess low cost funds and simultaneously improve the efficien y and e! wing to cutthroat competition in the industry, banks are facing pricing pre: ‘d have to give thrust on retail assets. ed Customer Loyalty: As a result of attractive offers by MNC and other iionalized banks, customers have become more demanding and the loyalties are fused. Value added offerings bound customers to change their preferences and “spective. These are multiple choices. The wallet share is reduced per bank with land on flexibility and customization. Given the relatively low switching cos‘ omer retention calls for customized service and hassle free, flawless servic very, i as employees are Mind-s ese changes are creating challenges, as employ adapt ae Esidiions tiie employees are resisting change and the Scanned with CamScannerseller market’s mind-set is yet to be changed. These problems are coupled with fear | ofuncertainty and control orientation. Moreover banking industry is accepting the _ atest technology but utilization is far below from satisfactory level. Competency Gap: The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. Placing the right skill at the right place will determine success. The focus of people will be doing work but not providing solutions, on escalating problems rather than solving them and on disposing customer instead of using the opportunity to cross sell. OPPORTUN _ The Liberalization and de-regulation process started in 1991-92 has made a sea __ change im the banking system. From a totally regulated environment, it has d into a market driven competitive system. The move towards has been, by and large, calibrated and regulator driven. The pace omentum in the last few years. Four trends change the banking olders. This could see the emergence of 4-5 world niche areas, the emergence of some national of regional players could be seen. Changes els used for lending to small borrowers and cro credit). Use of intermediaries or ) reduce transaction costs. would be greater sm, Similarly, some of ment is taking steps to Scanned with CamScannerqechnology In the ulti continue to leverage and delivery mod, complete financi; mate analysis, successful institutions will be those which the advancements in technology in reengineering processes es and offering state-of-the-art products and services providing al solutions for different types of customers. 4) Universalisation of banking : Retail lending will receive greater focus. Banks would compete with one another to provide full range of financial services to this segment. Banks would use multiple delivery channels to suit the requirements and tastes of customers. While some customers might value relationship banking (conventional branch banking), others might prefer convenience banking (ebanking). latory Disclosures By Citi Bank India Citibank Branches & Citi Mobile nnline forex trading transactions is ‘Scanned with CamScannerFinancial Risk in the Banking sector ve The major risks i . ‘into: 1°" TSks in banking business as commonly referred can be broadly classified Liquidity Risk Interest Rate Risk Market Risk Credit or Default Ri: ‘ isk Operational Risk ym funding of long-term assets by short-term ities subject to rollover or refinancing risk. n different dimensions - ty Risk is defined as the inability to obtain funds , funding liquidity risk is crucial. This utflows due to unanticipated withdrawal/ non- tail). the need to compensate for non-receipt of ing assets turning into non-performing n of contingent liabilities. It may profitable business in or the Market Value of ges in the interest rates. ye earnings of the bank or its bilities and Off-Balance Sheet Scanned with CamScannerirket Risk tisk of adv iati Pero Market marca ns of the mark-to-market value ofthe wading portfolio, jermed as Market Risk. This 4 ae the period required to liquidate the transactions is solatility of the market prices _ Tesults from adverse movements in the level or pbiinéncies. 1: s of interest rate instruments, equities, commodities, an S. It is also referred to as Price Risk. The term Market risk applies to {) that part of IRR which affects the price of interest rate instruments, Gi) Pricing risk for all other assets/ portfolio that are held in the trading book of the bank and (iii) Foreign Currency Risk. a (a) Forex Risk: Forex risk is the risk that a bank may suffer losses as a result of adverse exchange rate movements during a period in which it has an open position either spot or forward, or a combination of the two, in an individual foreign currency. (b) Market Liquidity Risk: Market liquidity risk conclude a large transaction in a particular instrum\ arises when a bank is unable to ent near the current market price. Default or Credit Risk more simply defined as the potential of a bank borrower or ‘is oie to fail to meet its obligations in accordance with the agreed terms. For largest and most obvious source of credit risk. It is the in the Indian scenario where the NPA level of the and is related to non- nce of the trading partners due to counterparty’s refusal and or inability to counterparty risk is generally viewed as a transient financial risk ‘trading rather than standard credit risk. This is also a type of credit risk where n party arises due to constraints or restrictions impos‘ 0 “non-performance js external factors on which the on-performance of a ed by a v5.4 nd administration of loan sition prior to lending, post-sanction follow-up, Scanned with CamScanner= — aa Paarl external factors are the state of Economy, Swings in commodity price carn exchange rates and interest rates, etc. i Tedit Risk can’t be avoided but c: i nealuy ‘an be mitigated by applying various risk- pe processes — F yee a ‘anks sh 1 i ia cae assess the credit-worthiness of the borrower before sanctioning loan =e a ee of the borrower should be done beforehand. Credit rating is the ae io measuring credit risk and it also facilitates pricing the loan. ear Ea Ree a aiyation and rating system of all investment opportunities, S € its credit risk as it can get vital in! weaknesses of the account. ones a Banks shi fi ie Ae Ze Poudental limits on various aspects of credit — benchmarking oe » Debt-Equity Ratio, Debt Service Coverage Ratio, Profitability Ratio There acy be maximum limit exposure for single/ group borrower There should be provision for flexibility to allow variations for very special circumstances. . Alertness on the part of Operating staff at all stages of credit dispensation appraisal, disbursement, review/ renewal, post-sanction follow-up can also be useful for avoiding credit risk. Operational Risk Basel Committee for Banking Supervision has defined operational risk as ‘the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events’. Managing operational risk has become important for banks due to the following reasons — Higher level of automation in rendering banking and financial services Increase in global financial inter-linkages Scope of operational risk is very wide becau: Two of the most common operational risks are discus: (2) Transaction Risk: Transaction risk is the risk arisin and external, failed business processes and the inability continuity and manage information. (b) Compliance Risk: Compliance ris! se of the above-mentioned reasons. sed below — from fraud, both internal to maintain business Jk is the risk of legal or regulatory sanction, financial loss or reputation loss that a bank may suffer as a result of its failure to , regulations, codes ‘of conduct and comply with any or all of the applicable laws, , os v. Sandards of a practice. It is also called integrity risk since a ba s reputation is Closely linked to its adherence to principles of integrity and fair destine Scanned with CamScannerOther Risks Apart from the above-mentioned tisks, follo Banks in course of their business operations (a) Strategic Risk: Strategic Risk is the risk ( aa u Ris arising from adverse business decisions, improper implementation of decisions or lack of Tesponsiveness to industry changes. (b) Reputation Risk: Reputation Risk is the risk arising from negative public opinion. This risk may expose the institution to litigation, financial loss or decline in customer base. Risk Management Risk Management is actually a combination of management of uncertainty, risk, equivocality and error. Uncertainty — where the outcomes cannot be estimated even randomly, arises due to lack of information and this uncertainty gets transformed into tisk (where the estimation of outcome is possible) as information gathering SCS gist ur Initially, the a ans Pe een systems that kept pace with legal environment and \s. But with the growing pace of deregulz 1c the customer’s behaviour, banks are exposed. wing are the other risks confronted by to establish a coherent framework for porate goals and responsive to the dynamic, banks should maintain vigil the country, changes in the importantly changes in the ‘Scanned with CamScannerEFFECTS OF GST DIFFICULTIES ‘All the bank need to register for their all office location. They have to maintain separate books of account to hi ‘ 5 ~ ave a i tax credit and utilized and unutilized credit. onto a Due a rep of all location Many banks and financial institutions may be in for a lot of trouble as they could just see the complexity i i s ity in increase under the GST. ee ee Complying with the requirements of reverse charge and partial reverse charge mechanism would add to further compliance costs. yutput service. paid on any goods procured by ed in GST, banks will be able SNVAT rules. But under GST ould be used by a bank for ST doing business will be easy. ‘Scanned with CamScanner