Challenges Faced by Banking Industry: Assignment

CHAROTAR UNIVERSITY OF SCIENCE AND TECHNOLOGY
FACULTY OF MANAGEMENT STUDIES (FMS)

INDUKAKA IPCOWALA INSTITUTE OF MANAGEMENT (I2IM)
BBA+MBA DUAL DEGREE PROGRAMME
SEMESTER-4
BUSINESS ENVIRONMENT-BM211
ASSIGNMENT
CHALLENGES FACED BY BANKING

INDUSTRY
Submitted To
Mr. Rajendra Solanki
Assistant professor
I2IM
CHARUSAT UNIVERSITY
Submitted By
PRUTHA BHATT
15BBA005
BBA-SEM (4)
I2IM
1
INTRODUCTION
With the potential to become the fifth largest banking industry in the
world by 2020 and the third largest by 2025 according to KPMG-CII
report, Indias banking and financial sector is expanded rapidly.
The Indian Banking Industry is currently worth Rs. 81 trillion( US $ 1.31

trillion) and banks are now utilizing the latest technologies like internet
and mobile devices to carry out transactions and communicate with the
masses.
The Indian banking sector consists of 26 public sector banks, 20 private

sector banks and 43 foreign banks along with 61 regional rural
banks(RRBs) and more than 90,000 credit cooperatives.
Another emerging trend witnessed by the banking sector is the use of

social media platform like Face book to attract customers.
In September 2013 ICIC bank launched a face book and fund transfer
service called Pockets for customer convenience.
2
CHALLENGES FACED BY BANKING INDUSTRY
1. Cyber-crime Facing the New Wave of criminal
It is now exceptional to read about a bank robbery where criminals have entered into
a bank branch and physically taken money out of the building. The introduction of
more effective security systems, such as bullet proof windows and barriers and
closed-circuit television, means that only the foolhardy would risk trying to steal
from a branch.
Unfortunately, that does not mean that the banking sector is safe. On the contrary,
the banking sector is facing a more serious threat where the perpetrators do not even
need to physically enter the branch. The IT systems of the banks are now the focus
of determined criminals who can transfer millions of pounds (or indeed any
currency) within seconds to different accounts and move money across jurisdictions
and borders with a few strokes of a keyboard. The full extent of the threat of cyber-
crime is only emerging and is almost certainly going to hit the headlines in 2015.
With IT systems of the larger banks under scrutiny for failures and inadequate
controls, it is open to question whether the level of security and infrastructure will
be sufficiently robust to withstand the challenge of cyber-crime.
2. Effecting cultural change
Tracey McDermott, head of enforcement at the Financial Conduct Authority, put it

most succinctly: The cultural change we are looking for is perhaps analogous to the
shift in attitudes to drink-driving between my parents generation and my own. For
3
my parents and their peers, reluctance to have a drink and get behind the wheel was
mainly because they were scared of being caught For my generation, however,
drinking and driving was presented as a moral issue. We were made to think about
whether it was right or wrong by forcing us to focus on the impact it could have on
others lives.
Whilst every chief executive of every bank has spoken of their desire to put
customers first and change the culture within their organization, no one has
explained how they intend to do this in practical terms.
Will next year be the one where that change begins? It has to be if the banking
sector is going to regain the trust of the public and their customers. My prediction is
that technology will be the driver for this cultural change with every sale and
every trade checked for the misdemeanours of the recent past.
3. More stress testing
One of the conclusions reached after the banking crisis of 2008 is the notion that
banks need to have greater capital reserves to avoid being too big to fail. As a
consequence banks have undergone stress tests and required to hold ever greater
amounts of capital. This avoids dealing with the more thorny issue of the inter-
relationships within the global banking community and how one bank can be
intrinsically linked to a host of others.
The weakest link may yet still be capable of threatening the stability of the worlds
banks. However, for the time being the major banks will need to comply with the
current and future requirements of capital reserves.
The full knock on effect of these requirements will come to light in 2015
particularly if the predicted growth rates for the major economies of the world slow
further.
4. Dealing with heightened regulatory scrutiny
4
With 2014 seeing record fines for LIBOR and FX rigging, the banking community
would like to think it has seen the last of the scandals. Unfortunately, the one thing
we can safely predict is that there will be more regulatory investigations and issues
to surface in the next year as regulators across the globe continue to scrutinise the
current and past behaviour of banks.
It is likely that 2015 will see a number of individuals facing prosecutions for their
part in the major scandals of 2014.
Banks will have to continue to invest heavily in compliance and risk monitoring to
ensure that they can deal with this increasing regulatory scrutiny.
5. Not making enough money
Despite all of the headlines about banking profitability, banks and financial
institutions still are not making enough return on investment, or the return on equity,
that shareholders require.
6. Consumer expectations.
These days its all about the customer experience, and many banks are feeling
pressure because they are not delivering the level of service that consumers are
demanding, especially in regards to technology.
7. Increasing competition from financial technology companies

Financial technology (FinTech) companies are usually start-up companies based on
using software to provide financial services . The increasing popularity of FinTech
companies is disrupting the way traditional banking has been done. This creates a
big challenge for traditional banks because they are not able to adjust quickly to the
changes not just in technology, but also in culture, and other facets of the industry.
5
8. Regulatory pressure
Regulatory requirements continue to increase, and banks need to spend a large part
of their discretionary budget on being complaint, and on building systems and
processes to keep up with the escalating requirements.
CONCLUSION
These challenges continue to escalate so traditional banks need to constantly
evaluate and improve their operations in order to keep up with the fast pace of
change in the banking system and financial industry today. Furthermore the
interference of the central government with the functioning of PSBs should stop. A
fresh autonomy package for public sector banks is in offing. The package seeks to
provide a high degree of freedom to PSBs on operational matters. This seems to be
the right way to go for PSBs.
The growth of the banking sector will be one of the most important inputs that shall
go into making sure that India progresses and becomes a global super power.
REFERENCES
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http://www.digitalistmag.com/industries/banking/2015/0
8/27/4-top-challenges-facing-banking-industry-right-
now-03352186
http://info.shine.com/industry/banking-financial-
services/8.html
https://www.kotaksecurities.com/ksweb/Meaningful-
Minutes/5-key-challenges-faced-by-Indias-banks

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CHAROTAR UNIVERSITY OF SCIENCE AND TECHNOLOGY

FACULTY OF MANAGEMENT STUDIES (FMS)

CHALLENGES FACED BY BANKING

The Indian Banking Industry is currently worth Rs. 81 trillion( US $ 1.31

The Indian banking sector consists of 26 public sector banks, 20 private

Another emerging trend witnessed by the banking sector is the use of

1. Cyber-crime Facing the New Wave of criminal

2. Effecting cultural change

Tracey McDermott, head of enforcement at the Financial Conduct Authority, put it

3. More stress testing

4. Dealing with heightened regulatory scrutiny

5. Not making enough money

7. Increasing competition from financial technology companies

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