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Regulatory Changes over the years
• Banking Regulator - the Reserve Bank of India (RBI)
• Capital markets regulator- Securities Exchange Board of India (SEBI)
• Insurance regulator - Insurance Regulatory Authority of India (IRDA)

• Major reforms in 1991, then in late 1990s, then WTO reforms 2005
Major Reform Initiatives
• Interest rate deregulation
• Adoption of prudential norms in terms of capital adequacy, asset
classification, income recognition, provisioning, exposure limits,
investment fluctuation reserve, etc.
• Lowering of reserve requirements (SLR and CRR)
• Government equity in banks reduced
• Banks allowed to access the capital market for raising additional
• New private sector banks set up and foreign banks permitted to
expand their operations in India.
• Banks allowed to set up Offshore Banking Units in Special
Economic Zones.
• New areas opened up for bank financing: insurance, credit cards,
infrastructure financing, leasing, gold banking, investment
banking, factoring, etc.
• New instruments introduced for greater flexibility and better risk
• New institutions set up including the National Securities
Depositories Ltd., Central Depositories Services Ltd., Clearing
Corporation of India Ltd., Credit Information Bureau India Ltd.
• Limits for investment in overseas markets by banks, mutual funds
and corporates liberalized.
• Universal Banking introduced.
• Payments and settlement system strengthened
• Risk Based Supervision of banks - Risk Management Committees
• Increase flow of credit to priority sectors
• The limit for foreign direct investment in private banks has been
increased from 49% to 74%.
• Development financial institutions can turn themselves into banks
Key business drivers

Easier advances
access to in Globalization
knowledge technolo
Economic Changes over the years
• Globalization
– Increasing irrelevance of national borders
• Capital markets are growing in scale, mobility and integration
– Acting as ‘engines’ of globalization
– Events in a remote part of the globe can have a disproportionate impact on other
– Unpredictable scale and pace of change

• Pressure on operations
– Greater disintermediation
• Declining margins in traditional business lines
• Asset side - Top corporates have access to cheaper funds from national /
global capital markets
• Liability side - Availability of investment options like mutual funds
– Customer driven
• Customer is more informed and sophisticated enabling him to differentiate
between offerings easily
• Need to innovate continuously as product cycles are shrinking
Economic Changes over the years (contd.)
• Risk management norms
– New Basel II norms require strict risk management
– Capital adequacy ratio getting higher

• Stress on service quality and delivery

– Switchover costs are low
– Price sensitivity being subordinated to service sensitivity

• Emergence of more and more universal banks

• Vertical integration by banks by offering insurance etc

• Merger of many public sector banks to give rise to banks more

global in operations
Technology Changes over the years
• Rapid advances in technology
– Death of distance, time and location
– Reduction in entry barriers
– Proliferation of technology-based distribution channels

• Access to knowledge
– Increasing importance of ‘Knowledge Capital’
– Leveraging knowledge as a key resource
– Ability to access talent worldwide through technology
– Knowledge is an asset which does not deplete
– As the number of people who access a pool of knowledge
increases, the pool expands
Technology Changes over the years
• Increased use of IT – CBS/internet banking/ATMs/RTGS/SFMS/etc
the organization is moving towards a paper- less office

• Greater use of technology

– New entrants leverage technology to overcome barriers of time
and distance
• Products are becoming virtual commodities

• Banks focusing on cost reduction and quality. (e.g. SBI

cost/income 64% to 50%)

• Quality and six sigma are becoming important

• Banks have adopted core-banking solutions in a fully networked

environment. Back office functions being taken away from
branches to a centralized place (Outsourcing).
Social Changes over the years

• The emerging middle class: Development of India’s economy

boosting overall consumer purchasing power. The percentage of
middle- to high-income Indian households rising.

• Diffused Customer loyalty: Customer bound to react to the value

added offerings. There are multiple choices. low switching costs

• Misaligned mindset: Resistance to change from employees, Fear

of uncertainty . Acceptance of technology is slow.

• Competency Gap: Placing the right skill at the right place will
determine success.
Focus on the Implement multi-product,
customer multi-channel distribution

Diversification Increase revenue streams

Reduced Focusing on non-fund based

dependence on revenue streams
interest income

Focus on Improve operating

processes efficiencies

Consolidation Gain benefits of economies

of scale & scope