Banking IndustryRecent trends and the road ahead
OBJECTIVES Main history of Indian Banking Industry. Past performance and trends. Major changes in recent past. Current scenario. The road ahead and challenges.
History and introduction to banking industry Originated in the last decade of the 18th century. The General Bank Of India(started-1786),Hindustan Bank(started -1790). Formation of RBI in1934, got nationalized in January 1949 under RBI act. Nationalization: Except SBI every other bank was functioning independently. In 1969 ,14 banks got nationalized. 6 more banks got nationalized in 1980.
Post liberalization era: Initially 10% FDI allowed, at present 74% with some restriction. Conversion from 4-6-4 model to 8 to 8 banking(present). Adaptation of technology: Internet banking Electronic fund transfer Automatic teller machines. Core banking solutions.
Past performances and trends80.00 1) Non performing asset70.00 Priority sector worst performer in recent past.60.0050.00 Non priority good40.00 priority performance till 2008. non priority30.00 public Public sector has been20.00 good and consistent performer throughout.10.00 0.00 2 4 6 8 10
Profitability Despite high interest rates and high NPA and high provisioning requirement the banking sector witnessed growth Growth of investments decelerated Operating expenses grew at a higher rate Growth of ‘other income’ decelerated 1. ROA moved from 1.05% to 1.10 % 2. ROE also witnessed improvements.
Soundness indicatorsAsset qualityPrivate sector saw a growth, whereas public sector asset quality declined due to higher NPAAgriculture contributed 44% in Higher NPALeverage RatioRemained constant at 6%Credit boomNo chances of credit boom despite higher credit growth
CRAR Declined owing to decline in tier2 CRAR ratio. migrating to Basel II framework, the parallel run of Basel I is also continuing as a backstop measure. The CRAR of all bank groups under Basel I remained well above the stipulated regulatory norm of 9 per cent in 2010-1. Under Basel II also, the CRAR of SCBs remained well above the required minimum in 2010-11. This implies that, in the short to medium term, SCBs are not constrained by capital in extending credit
Current scenario Indian banking industry maintaining resilience while providing for growth opportunities. Survey by Ficci shows: Regulatory framework, economic growth and insulation from external market is major reason for the better performance. Regulatory systems of Indian banks were rated better than China, Brazil, Russia, UK and at par with Japan, Singapore and Hong Kong. India’s Risk management systems more advanced than China, Brazil and Russia
Overview A rigorous evaluation of the health of commercial banks, recently undertaken by the Committee on Financial Sector Assessment (CFSA) also shows that the commercial banks are robust and versatile. The single-factor stress tests undertaken by the CFSA divulge that the banking system can endure considerable shocks arising from large possible changes in credit quality, interest rate and liquidity conditions
Human resource challanges Thus, on the whole, we see that Public Sector Banks, Private Sector Banks as well as Foreign Banks view difficulty in hiring highly qualified youngsters as their biggest HR threat ahead of high staff cost overheads, poaching of skilled quality staff and high attrition rates
The road ahead. Is our banking industry ready for Basel 3 norms Are we ready for IFRS norms. Current and emerging environment offers sound business opportunities to the banks. Opportunities to the new entrants. Improving efficiency. Need to review laws governing the Indian banking sector Banking activities. Credit flow industry.