CHALLENGES AND OPPORTUNITIES IN INDIAN BANKING SECTOR

by
T.NADEERA

R.NARMADHA

Bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets.

CHARACTERISTICS / FEATURES OF A BANK

Dealing in Money
Acceptance of Deposit Giving Advances Payment and Withdrawal Profit and Service Orientation Connecting Link Name Identity

INDIA BANKING SYSTEM

STRUCTURE
SCHEDULED BANKS
COMMERCIAL BANKS PUBLIC SEC BANKS PVT. SECTOR BANKS NATIONALIZED BANKS COOP. BANKS

SCH. URBAN COOP BANK FOREIGN BANKS

STATE COOP BANK

RURAL REGIONAL BANKS

SBI & ITS OLD PVT. NEW PVT. ASSOCIATES BANKS BANKS

BANK GROUP
NATIONALISE D BANKS STATE BANK OF INDIA OLD PRIVATE SECTOR BANKS

NUMBER OF ON SITE BRANCHE ATM S

33627 3205

OFF SITE TOTAL ATM ATM

1567 4772

13661

1548

3672

5220

4511

800

441

1241

NEW PRIVATE SECTOR 1685 BANKS FOREIGN BANKS 242

1883

3729

5612

218

579

797

BANKING CONCEPTS

PLR or prime lending rate - rate of interest at which banks

lend to their credit-worthy or favoured customers. It is treated as a benchmark rate for most retail and term loans. influenced by RBIs policy rates the repo rate and cash reserve ratio

Deposit Rates - Interest rate paid on deposit accounts by

commercial banks and other Fis

Bank rate - rate of interest which RBI charges on loans and

advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by RBI to control money supply

COND..,

Repo Rate - rate at which banks borrow from RBI. A reduction in repo
rate will help banks to get money at a cheaper rate.

Reverse Repo rate

- rate at which RBI borrows money from banks. An increase in Reverse repo rate can cause banks to transfer more funds to RBI due to this attractive interest rates. It can cause the money to be drawn out of the banking system.

Due to this fine tuning of RBI using its tools of CRR, Bank Rate, Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man.

THE BANKING SECTOR TODAY

Depth

Diversification

Countrywide coverage Large number of players Increasingly sophisticated financial markets

Emergence of integrated players Diversifying capital deployment Leveraging synergies

Technology

Regulation

Increasing use of technology in operations Poised to expand and deepen technology usage

Robust regulatory system aligned to international standards Efficient monetary management

RBI RATE CUT POLICY

CHALLENGES
Foreign

banks Greater capital market openness Cost management Recovery management Consolidation Risk management Public sector banks Governance Reach and innovation

OPPORTUNITIES
E-banking

Retail

banking SME Financing Enlarged customer base Global banking Advanced technology Geographical support

ONLINE BANKING

FOUR CHALLENGES
Indian banks had to clean up their systems and practices to ensure stability in a recovering economy.

Continuous growth in these new products and services requires new skills in sales and marketing, credit, operations and, above all, a potential customer base to provide these offerings. There will be no windfall treasury gains, which banks used to enjoy as a result of the decade-long secular decline in interest rates provided. This will expose the weaker banks and put them in trouble to a large extent.

CONTD..,
Growing

interest in India will encourage foreign banks to set shop in India, thereby intensifying the competition for domestic and other existing players. As India is experiencing demographic shifts resulting from changes in age profile and household income, now consumers will demand improved institutional capabilities and enhanced service levels from banks.

ADVANCED TECHNOLOGY
New generation private sector banks and foreign banks are technologically more advanced in terms of management information systems, delivery mechanisms, etc. These systems and processes require substantial investments which may be possible after consolidation.

CONCLUSION

The banking sector has achieved significant success in addressing legacy concerns

Resolution of asset quality concerns through recovery, restructuring and provisioning Focus on technology and customer orientation

The economic transformation provides major opportunities for the banking sector.
Retail finance credit and banking services Corporate finance - banking services and structured finance

The sector is poised to capitalize on these opportunities.