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    Challenges Faced Banking Sector

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    Hemant Mehta
    The document outlines 11 key challenges facing the banking sector in India: 1) Financial disintermediation is reducing banks' role as corporations and investors access capital markets directly. 2) Banks face competition from investment vehicles like mutual funds and insurance companies. 3) Banks must comply with changing Basel capital adequacy norms. 4) Deregulation has increased risks like interest rate, liquidity, credit, and operational risks. 5) Banks must effectively adopt technology to improve services and decision making. 6) Customer expectations for expanded access and high quality, low cost services are increasing. 7) Banks are shifting focus to more profitable retail banking as corporate banking declines. 8) Non-performing assets must be reduced to limit losses. 9)

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    Challenges Faced Banking Sector

    Uploaded by

    Hemant Mehta
    443 views14 pages
    The document outlines 11 key challenges facing the banking sector in India: 1) Financial disintermediation is reducing banks' role as corporations and investors access capital markets directly. 2) Banks face competition from investment vehicles like mutual funds and insurance companies. 3) Banks must comply with changing Basel capital adequacy norms. 4) Deregulation has increased risks like interest rate, liquidity, credit, and operational risks. 5) Banks must effectively adopt technology to improve services and decision making. 6) Customer expectations for expanded access and high quality, low cost services are increasing. 7) Banks are shifting focus to more profitable retail banking as corporate banking declines. 8) Non-performing assets must be reduced to limit losses. 9)

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    The document outlines 11 key challenges facing the banking sector in India: 1) Financial disintermediation is reducing banks' role as corporations and investors access capital markets directly. 2) Banks face competition from investment vehicles like mutual funds and insurance companies. 3) Banks must comply with changing Basel capital adequacy norms. 4) Deregulation has increased risks like interest rate, liquidity, credit, and operational risks. 5) Banks must effectively adopt technology to improve services and decision making. 6) Customer expectations for expanded access and high quality, low cost services are increasing. 7) Banks are shifting focus to more profitable retail banking as corporate banking declines. 8) Non-performing assets must be reduced to limit losses. 9)

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    443 views14 pages

    Challenges Faced Banking Sector

    Uploaded by

    Hemant Mehta
    The document outlines 11 key challenges facing the banking sector in India: 1) Financial disintermediation is reducing banks' role as corporations and investors access capital markets directly. 2) Banks face competition from investment vehicles like mutual funds and insurance companies. 3) Banks must comply with changing Basel capital adequacy norms. 4) Deregulation has increased risks like interest rate, liquidity, credit, and operational risks. 5) Banks must effectively adopt technology to improve services and decision making. 6) Customer expectations for expanded access and high quality, low cost services are increasing. 7) Banks are shifting focus to more profitable retail banking as corporate banking declines. 8) Non-performing assets must be reduced to limit losses. 9)

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    CHALLENGES FACED

    BY BANKING SECTOR IN INDIA

    Presentation By
    K. RAJASEKARAN
    Ex-Dy. Director (Academics)
    Ahmedabad Management Association
    (Former AGM, Global Trust Bank Ltd and
    State Bank of Travancore – Subsidiary of SBI)
    CHALLENGES FACED BY BANKING SECTOR

    IMPACT OF FINANCIAL DISINTERMEDIATION


    COMPETITION FROM OTHER INVESTMENT
    VEHICLES
    CHANGING CAPITAL ADEQUACY NORMS (BASEL II)
    EXPOSURE TO ENHANCED RISKS IN THE SYSTEM
    EFFECTIVE USE OF TECHNOLOGY
    INCREASING CUSTOMER EXPECTATIONS
    FOCUS ON RETAIL BANKING
    PROBLEMS POSED BY N. P. A
    NEED TO INCREASE NON INTEREST INCOME
    CONSOLIDATION (MERGERS / AMALGAMATIONS)
    1. IMPACT OF FINANCIAL DISINTERMEDIATION

    CORPORATES RAISING FINANCE FROM


    CAPITAL MARKET THRO’ SHARES / BONDS
    INVESTORS DEPOLYING THEIR FUNDS IN
    EQUITY SHARES, BONDS, MUTUAL FUNDS
    CHANGING ROLE OF BANKS INTO FULL
    FLEDGED FINANCIAL SUPERMARKET
    NEED TO BUILD CAPACITY TO COPE WITH
    THE VOLUME OF OPERATIONS
    2. COMPETITION FROM OTHER INVESTMENT
    VEHICLES

    PSU BANKS FACE THREAT FROM PVT BANKS


    BANKING SECTOR AS A WHOLE FACE
    COMPETITION FROM:
    MUTUAL FUNDS / CAPITAL MARKET
    INSURANCE COMPANIES
    POST OFFICES / GOVT. TREASURY
    BANKS CONTINUE TO ATTRACT FUNDS
    BECAUSE OF PERCEIVED SAFETY,
    CONVENIENCE AND FLEXIBILITY.
    3. CHANGING CAPITAL ADEQUACY NORMS

    GLOBALISATION DEMANDS BANKS TO HAVE


    MINIMUM CAPITAL AS PER INTERNATIONAL
    NORMS
    INCREASING VOLUME OF BUSINESS AND
    ENHANCED RISKS ENTAIL HIGHER CAPITAL
    ISSUES RELATING TO NATURE AND COST
    OF CAPITAL FUNDS
    COMPLYING WITH BASEL II NORMS
    4. EXPOSURE TO ENHANCED RISKS

    ACCENTUATED INTEREST RATE RISK


    CONSEQUENT ON DEREGULATION
    INCREASING LIQUIDITY RISK DUE TO
    CHANGING MATURITY PROFILE
    NEED FOR REGULAR A. L. M
    ENHANCED AND VARIED CREDIT RISK
    FOLLOWING GLOBALISATION
    COMPLEXITY OF OPERATIONAL RISK AS A
    SEQUEL TO INCREASING VOLUME
    5. EFFECTIVE USE OF TECHNOLOGY

    USE OF COST EFFECTIVE TECHNOLOGY TO


    PROVIDE ATM & NET BANKING FACILITY
    TECHNOLOGY TO BE FULLY GEARED TO
    SUPPORT ANYWHERE / ANYTIME BANKING
    PROPER USE OF TECHNOLOGY TO
    EXPEDITE BACK OFFICE TRANSACTIONS
    MAKING TECHNOLGY WORK TOWARDS
    HELPING TOP LEVEL DECISION MAKING
    6. INCREASING CUSTOMER EXPECTATIONS

    CUSTOMER EXPECTS FLEXIBLE


    DISTRIBUTION CHANNELS
    ATM / NET BANKING / PHONE / MOBILE /HOME
    DEMAND FOR EXTENDED BANKING HOURS
    LOWEST RESPONSE TIME
    COMPETITIVE PRICING BASED ON QUALITY
    ALL FINANCIAL SERVICES UNDER ONE ROOF
    PROPER CUSTOMER ORIENTATION
    7. FOCUS ON RETAIL BANKING

    DWINDLING CORPORATE BANKING BUSINESS


    NECESSITATES FORAY INTO RETAIL.
    RETAIL DEPOSITS TEND TO BE MORE STABLE
    AND DIVERSIFED
    RETAIL ASSETS YIELD BETTER RETURN
    LOW INCIDENCE OF N.P.A.
    TREMENDOUS SCOPE FOR EXPANSION
    PROPER MONITORING REQUIRED AS IT IS
    VOLUME DRIVEN
    8. PROBLMES POSED BY N. P. A

    BANKS TO CONFORM TO NPA


    CLASSIFICATION AND PROVISIONING
    NORMS STIPULATED BY RBI
    NPA LEVEL TO BE REDUCED DRASTICALLY
    LEST IT AFFECTS INCOME AND PROFIT
    BOTH LEGAL AND OUT OF COURT
    SETTLEMENTS TO BE USED FOR
    RECOVERY
    CREDIT APPRAISAL AND FOLLOW UP TO BE
    STRENGTHENED TO PREVENT NPA
    9. NEED TO INCREASE NON INTEREST
    INCOME

    THINNING OF SPREAD NEEDS TO BE


    COMPENSATED BY OTHER INCOME
    WITH PROSPECT OF LOW TREASURY
    PROFIT BANKS TO FOCUS MORE ON FEE
    BASED INCOME OPPORTUNITES
    CROSS SELLING OF MUTUAL FUND AND
    INSURANCE PRODUCTS
    INCREASING POTENTIAL FOR DEMAT,
    UTILITY BILL PAYMENTS AND FOREX
    10. CONSOLIDATION (MERGERS /
    AMALGAMATIONS )

    MERGERS MAY BE RESORTED


    TO ACHIEVE CRITICAL SIZE
    TO EXPAND PRODUCT PORTFOLIO
    TO EXPAND GEOGRAPHICAL AREA
    TO ACQUIRE SYNERGY BY PICKING
    UP COMPLEMENTAL BUSINESS
    TO WARD OFF TAKE OVERS
    11. MANAGING HUMAN RESOURCES

    RECRUITMENT OF CANDIDATES WITH


    PROPER CUSTOMER ORIENTATION
    MANAGING KNOWLEDGE WORKERS
    RETAINING TALENT WITH MOTIVATION
    SKILL DEVELOPMENT THRO TRAINING
    OUTSOURCING OF ROUTINE WORK
    PROPER REWARD SYSTEMS
    THANK YOU !
    K. RAJASEKARAN

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