The FUTURE OF BANKING IN INDIA

Saying future of indian banking is bright would be an understatement. Growing competition and
conjunction of services, has lead to a more benefited customer. Simultaneously, emergence of a
large number of complicated financial instruments is expected in the near future (which is visible
in the current scenario) which would prove confusing to the customer more than ever unless
he/she spends a lot of time understanding the same, leading to a growth in trend towards the
importance of relationship managers. A banks success or failure depends not only on tapping
the untapped customer base (from other departments of the same bank, customers of the
competitors) but also on the efficiency in retaining the existing customer base.
A leading international consulting agency, McKinsey & Company, In an interesting futuristic
study, reveals "three potential scenarios'', (based on the interplay between policy and regulatory
interventions and management strategies) that by 2010 could emerge in the Indian banking
sector.
The scenario of high performing - Where intervention of policy makers is only to the required
extent to ensure stability of the system and to safegaurd consumers' interest, and bank
managements endeavors for far-reaching change.
The scenario of evolving - Pro-market stance is adopted by the policy makers but are careful on
pushing reform. Banking sectors value added share would be GDPs 4.7%.
stagnating scenario - The management is incapable to execute changes to deliver value to
shareholders or customers as the policy makers intervene to set restrictive conditions. banking
sectors value added share would sum up to be only GDPs 3.3 %.

FUTURE CHALLENGES & SUGGESTIONS

Consolidation of Banks in India
A large number of global banks governing a huge stake of the banking entities in the country
would be seen. Capital, technology, and management skills are brought in by the overseas
banking units along with them, which would ensure greater efficiency and lead to higher
competition in the banking frontier.
The speculative signals arising from the market point towards the prospect of consolidation of
banks such as Union Bank of India, Bank of India, Bank of Baroda, Dena Bank, State Bank of
Patiala, and Punjab and Sind Bank, though there is no conformation. Further, the case for union
between stronger and powerful banks has also gained ground this is a clear deviation from the
past when only weaker banks were thrust on stronger banks. There is a case being made for
mergers and unions between banks with a seperate geographical presence coming together to
leverage their individual strengths.

GLOBALIZATION/ OVERSEAS EXPANSION

Global banking has beacome a reality because of the Growing integration of economies and the
markets around the world. The flow in globalization of finance has already started to gain
momentum with the advancement in technologies which have efficiently overcome the national
boundaries in the financial services business. Frontiers of global banking will widen with the
widespread use of internet banking,which shall make marketing of financial services on the
world level possible. The spreading of globalization will spread further facilitated on account of
the likely setting up of financial services under WTO.
The Indian banks are hopeful of becoming a global brand as they are the major source of
financial sector revenue and profit growth. The financial services penetration in India continues
to be healthy, thus the banking industry is also not far behind. As a result of this, the profit for
the Indian banking industry will surely surge ahead.

RISK MANAGEMENT AND BASEL II

The future of banking will undoubtedly rest on risk management dynamics. Only those banks
that have efficient risk management system will survive in the market in the long run. The
effective management of credit risk is a critical component of comprehensive risk management
essential for long-term success of a banking institution.
With the focus on regulation and risk management in the Basel II framework gaining
prominence, the post-Basel II era will belong to the banks that manage their risks effectively.
The banks with proper risk management systems would not only gain competitive advantage by
way of lower regulatory capital charge, but would also add value to the shareholders and other
stakeholders by properly pricing their services, adequate provisioning and maintaining a robust
financial structure.
The future belongs to bigger banks alone, as well as to those which have minimized their risks
considerably.

TECHNOLOGY and skilled manpower

There is an imperative need for not mere technology up gradation but also its integration with the
general way of functioning of banks to give them an edge in respect of services provided to their
constituents, better housekeeping, optimizing the use of funds and building up of MIS for
decision making, better management of assets & liabilities and the risks assumed which in turn
have a direct impact on the balance sheets of banks as a whole. Technology has demonstrated
potential to change methods of marketing, advertising, designing, pricing and distributing
financial products and services and cost savings in the form of an electronic, self-service product
delivery channel. These challenges call for a new, more dynamic, aggressive and challenging
work culture to meet the demands of customer relationships, product differentiation, brand

values, reputation, corporate governance and regulatory prescriptions. Technology holds the key
to the future success of Indian Banks.
There will be a sea change for employees too. Secure jobs will be replaced by contractual
appointments, for a specified period of time. The unions will merge into the shadows and bank
managements will turn effective. As a result there will be swifter turn over of personnel in banks.
But at the same time, skilled personnel from other disciplines will enter banks in increasing
numbers. Factors like skills, attitudes and knowledge of the human capital play a crucial role in
determining the competitiveness of the financial sector. The quality of human resources indicates
the ability of banks to deliver value to customers. Capital and technology are replicable but not
the human capital which needs to be valued as a highly valuable resource for achieving that
competitive edge. Business model, which comprises a comprehensive range of business solutions
delivered through a unique balance of portfolio and relationship management must be
incorporated.
The future will belong to those who develop good internal controls, checks and balances and a
sound market strategy. Business Growth, Cost Efficiency and Evolution are therefore regarded as
key drivers which will have to be addressed.

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