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BANKING

A J.K.OKE PRESENTATION

BANKING SECTOR REFORMS

INITIATED DURING POST-1991 PERIOD WHEN THE BROADER ECONOMIC REFORMS POLICY, KNOWN AS THE LPG POLICY ( LIBERALISATION , PRIVATISATION & GLOBALISATION ) WAS INITIATED. THE BANKING SECTOR REFORMS GOT A BOOST WITH THE IMPLEMENTATION OF MAJOR RECOMMENDATIONS OF THE

NARASIMHAM COMMITTEE

BANKING SECTOR REFORMS: BASIC STRUCTURE

ENTRY OF NEW PRIVATE BANKS - BOTH INDIAN & FOREIGN - FOR THE FIRST TIME AFTER 1969 AUTONOMY & ACCOUNTABILITY AS REGARDS BRANCH EXPANSION & ADVANCES/ LOANINGS OPERATIONS (RATIONALISING / RIGHT-SIZING / RELOCATION OR CLOSING DOWN OF BANK BRANCHES PERMITTED)

BANKING SECTOR REFORMS: BASIC STRUCTURE

MOVEMENT AWAY FROM ACTIVITY TO PROFESSIONALISATION MORE POWERS FOR BANK BOARDS, WITH REDUCED GOVERNMENT INTERVENTION REORGANISING BANKS INTO GLOBAL, NATIONAL & REGIONAL BANKS

BANKING SECTOR REFORMS: BASIC STRUCTURE

TRANSPARENCY IN BALANCE SHEETS REDUCTION IN CRR & SLR RATIOS PARTIAL DEREGULATION OF INTEREST RATES ON BOTH ADVANCES & DEPOSITS (BANKS CAN NOW ARRIVE AT THEIR OWN PLR / LENDING / DEPOSIT RATES)

BANKING SECTOR REFORMS: BASIC STRUCTURE

PARTIAL DEVIATION FROM DIRECTED LENDINGS ( EARLIER REFERRED TO AS


THE PRIORITY SECTOR LENDINGS WHICH HAD TO CONSTITUTE 40% OF THE BANKS TOTAL ADVANCES. NOW WOULD BE BROUGHT DOWN TO 25%)

NOT SANCTION & DISBURSEMENTS BUT RECOVERY OF ADVANCES

BANKING SECTOR REFORMS: BASIC STRUCTURE

EMPHASIS ON QUALITATIVE RATHER THAN QUANTITATIVE APPROACH SPECIAL TRIBUNALS TO BE SET UP TO SPEED UP THE PROCESS OF RECOVERY OF LOANS AND ENFORCEMENT OF PRUDENTIAL NORMS INTRODUCED MAINLY WITH A VIEW TO ENSURE THE FINANCIAL HEALTH OF THE BANKING / FINANCIAL INSTITUTIONS

BANKING SECTOR REFORMS: BASIC STRUCTURE

EMPHASIS ON QUALITATIVE RATHER THAN QUANTITATIVE APPROACH .. PROVISIONING NORMS LAID DOWN NPA MANAGEMENT PROFITABILITY NORMS CAPITAL ADEQUACY NORMS (BASLE NORMS ) UPGRADATION OF TECHNOLOGY (COMPUTERISATION OF OPERATIONS)

FOUR STEPS TO NPA MANAGEMENT:

ASSESSMENT

PROVISIONING
RECOVERY PREVENTION

NPA MANAGEMENT: ASSESSMENT

DURING 1988-89, ASSETS WERE ALLOTTED HEALTH CODES AS FOLLOWS: SATISFACTORY IRREGULAR SICK-VIABLE SICK-NON-VIABLE ADVANCES RECALLED SUIT-FILED ACCOUNTS DECREED ACCOUNTS BAD & DOUBTFUL OF RECOVERY

NPA MANAGEMENT: PROVISIONING

ASSETS WERE FURTHER CLASSIFIED INTO STANDARD ASSETS ( NO PROVISION), SUB-STANDARD ( 10% PROVISION), DOUBTFUL ASSETS (UNSECURED: 100%, SECURED: 20% TO 50% PROVISION) & LOSS ASSETS (100% PROVISION)

NPA MANAGEMENT: RECOVERY

SETTLEMENT ADVISORY COMMITTEES (SACs) 1999 DEBT RECOVERY TRIBUNALS (DRTs) RECOVERY OF DEBTS DUE TO BANKS & FINANCIAL ACT AMENDED IN 2000 LOK ADALATS

BASLE NORMS

EARLIER, CAPITAL ADEQUACY NORMS DID NOT RECEIVE ADEQUATE EMPHASIS BECAUSE OF THE FALSE ASSUMPTION THAT BANKS /FINANCIAL INSTITUTIONS OWNED BY THE GOVERNMENT CANNOT FAIL OR CANNOT RUN INTO PROBLEMS THE CAPITAL ADEQUACY NORMS NOW LAID DOWN IN THIS REGARDS ARE BASICLLY BASED UPON THE RECOMMENDATIONS OF THE COMMITTEE ON BANKING REGULATIONS AND SUPERVISORY PRACTICES (1988) OF BASLE BASED BANK OF INTERNATIONAL SETTLMENT (BIS)

BASLE NORMS

THE RBI, IN 1992, ISSUED GUIDELINES TO BOTH INDIAN & FOREIGN BANKS OPERATING IN INDIA THE NORMS STIPULATED, INTER ALIA, THAT ULTIMATELY ALL THE BANKS WOULD HAVE TO ACHIEVE A MINIMUM OF 8% CAPITAL ADEQUACY RATIO (THE PSBs HAD TO INCREASE THEIR CAPITAL BASE BY RS. 5,840 CRORES BY 31/3/1991 AND BY RS. 20,000 CRORES BY 1996.)

UPGRADATION OF TECHNOLOGY

COMPUTERISATION OF OPERATIONS LEVERAGING I.T. FOR: COMPETITIVE ADVANTAGE BETTER HOUSE-KEEPING CRM/SERVICE QUALITY ALM etc.

TO CONCLUDE,

THE VARIOUS MEASURES OF REFORMS ALREADY INITIATED AND THOSE UNDER WAY, ARE EXPECTED TO CREATE IN THE FINANCIAL SYSTEM, A CONDUCIVE ENVIRONMENT FOR COMPETITION, BETTER OPERATIONAL EFFICIENCY, BETTER CUSTOMER SERVICE/PRODUCT DEVELOPMENT, AND HIGHER PRODUCTIVITY / PROFITABILITY

TO CONCLUDE.

THIS WOULD CONSIDERABLY STRENGTHEN ORGANISATIONAL AND MANAGERIAL ABILITIES, AND FINANCIAL VIABILITY OF THE SYSTEM WHICH WOULD ALSO HELP THE SYSTEM TO WITHSTAND ANY OF THE VICISSITUDES WHICH MAY ARISE IN THE NORMAL COURSE OF BUSINESS.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

The Indian Banking Scenario has undergone metamorphic transformation during the last few years . Thanks to nationalisation of 14 major banks in 1969 and 6 more banks in 1980 , an extensive banking network spread over around 76000 branches has been established. The network is one of the largest in the world today.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

Perhaps the most significant point is that Indias banking system has been closely associated with Indias development strategy and development efforts . The diversification and development of our national economy and acceleration of the growth process are in no small measure due to the active role that the banks have played in financing economic activities in various sectors. Banks have, indeed, acted as not only a catalyst but as engine of / for economic development.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

The Banking System now faces many a daunting challenges . One way of course could be to continue to do what banks are doing now, and try to do it a little better.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

The other route could be to set for ourselves an altogether different and ambitious goal which can translate our countrys vast potential into actual reality so that India will not be considered as A Rich Country of Poor People, but rather A Rich Country of Rich People

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

Liberalisation , Privatisation and Globalisation & the near elimination of national borders in financial services and the resultant market volatility Changing / Dynamic Environment Competition : ( Local / Global Private Banks , NBFCs , Provident / Pension Funds , Mutual Funds )

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

New Product Development Functional Specialisation Greater Customer Orientation ( CRM) One Stop Financial Services Super-Shoppe

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

Technology Mobile/Internet Banking WTO :Elimination of Quantitative Restrictions, Market Liberalisation & Greater Market Access New Skills as regards Resources Management (Asset-Liability Management / Credit Assessment / Appraisal )

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

NPA Management / Prudential Norms New Basle Capital Accord effective from 2004 with revised Capital Adequacy Framework Re-Capitalisation HR Development

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

Effective / Efficient Supervision Corporate Governance : Transparency / Disclosure Practices Change Management Changing the Mindset Contain Politicisation and promote / cultivate Professionalisation

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

One may , of course , like to ask certain questions like : Is it realistic for India to set for itself the goal of becoming a major international banking and financial hub / centre / player in the early part of the current century ?

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

Let us not forget that India has made progress in several areas like : Development of competitive financial sector with multiple intermediaries The movement towards best international practices in regard to Capital Adequacy , Prudential Norms and Supervisory Standards Strengthening the Transparency and Disclosure Practices by banks and other financial institutions

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

Let us not also forget that India has made progress in several areas like : Better application of Asset and Risk Management by financial intermediaries Reducing the extent of NPAs Instituting speedier mechanism for settling of bank dues (Debt Recovery Tribunals)

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

The Indian Banking Sector is dominated by Public Sector units A sensitive and controversial question to be addressed , sooner or later, is whether the public sector character of these institutions is consistent with their being able to play a globally competitive role in the years to come.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

The Bankers must realise that , in the years to come , it is going to be survival of the fittest. The Bankers must therefore realise that they have to move from Activity or Occupation to a Profession.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

They must therefore endeavour to be PRO-ACTIVE --- being ready for tomorrow, today; and be able to adopt and adapt to the dynamic and constantly changing local and global business environments.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :


Will

they be able to effect this transformation ?


is the crux of the challenge.

This

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :


During 1990-1991, before India embarked upon the journey of Economic Reforms Policy , The Economist , a British Weekly , brought out a special issue on Indian Economy.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

The Weekly stated that like the SouthEastern Economies referred to as the Asian Tigers - India has all the , in fact much more , resources. However , due to excessive Government Controls and Regulations, Indian Economy was not able to deliver as the Indian Economy was like a Tiger in Cage.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

Post-1991 , the same Weekly, Economist , during 1993-1994, brought out another special supplement on the Indian Economy.

CHALLENGES BEFORE INDIAN BANKS IN THE NEW MILLENNIUM :

It stated that with the Policy of L PG, and the resultant abolition of Controls and Regulations , the Government of India had done its bit. The Weekly then went on to add :

Although the Cage is wide open , the Tiger refuses to come out of the Cage

ANY FURTHER

COMMENTS ?