The document analyzes various macro environmental factors using the PEST framework. It discusses the political, economic, social, and technological landscape that banks operate within. Politically, regulatory changes are needed to modernize the banking system and increase self-regulation. Economically, India has grown from shortages to plentiful goods and services. Socially, rural areas remain an important market. Technologically, information sharing and new players could change the banking industry.

1. PEST ANALYSIS
PEST analysis stands for "Political, Economic, Social, and Technological
analysis" and describes a framework of macro environmental factors used in
the environmental scanning component of strategic management.
Political Analysis:
The expected integration of various intermediaries in the financial system would
require a strong regulatory framework, the report states. It would also require a
number of legislative changes to enable the banking system to remain
contemporary and competitive. Underscoring that there would be an increased
need for self-regulation, the report states that development of best practices
could evolve better through self-regulation rather than based on regulatory
prescriptions.
For instance, to enlist the confidence of the global investors and international
market players, the banks will have to adopt the best global practices of
financial accounting and reporting. It is expected that banks would migrate to
global accounting standards smoothly, although it would mean greater
disclosure and tighter norms, the report adds.
Notwithstanding the limited time ahead, the expectations, suggestions and
recommendations of the Banking Industry Vision report are well within the
realm of realisation in part or whole. The first phase of banking reforms was
born out of panic. The second phase can be implemented from a position of
strength and confidence in a compressed time-frame.
Economic Analysis:
THE INDIAN economy has shown tremendous growth over the past decade.
This statement may seem odd to the economists who keep comparing the
growth rates to that of China or the East Asian Tigers. These countries have
definitely shown good economic growth, but India's is nothing to be scoffed at.

2. This assertion is not being made by comparing the GDP growth, FDI inflow,
changes in per capita income and other economic criteria, but by looking at the
increase in the availability of goods and services.
A while ago, visiting foreign countries, one used to wonder when India would
catch up. People walking around with mobile phones, shopping malls
overflowing with goods, and even dozens of branded water. Coming from India,
where water had to be boiled and filtered before consumption, these countries
seemed like paradise.
Now, a decade later, India seems to have caught up with some of these things at
least. Take the cell phones and pagers. Hong Kong went through the pager
phase for two or three years before going cell. In India, pagers did not take off,
while cell phones clicked. The accelerated telecommunications revolution has
made cell phone easily affordable. India is no longer the backwaters of for hi-
tech products.
An economist may argue that availability of cell phones and branded water does
not indicate a developed economy. But even they have to agree that India seems
to have changed from a country of shortages to one of plenty. And along with
plentiful supplies, there is also variety.
In the early 1990s, there were three varieties of car models/makers —
Ambassador, Fiat and Maruti 800. Today there are apparently some 500 models
from more than 10 manufacturers.
Developmental economists may argue that plentiful supply of goods and
services does not mean that India has become prosperous and that India has a
long way to catch up with the developed economies. But one has to agree that
the India has made much progress over the past decade.
Western economies have grown partly because of consumption economics.
Those economies produced large number of goods, employing more and more
people to produce these goods. These employees in turn consumed the goods,
creating a virtuous cycle. Maybe India is following this path.
All the good are available in plenty. Now the living standards of people have to
be improved so that they start consuming these goods. Maybe, that is why the
new Finance Minister wants to put more money in the housewives' hand.
Social Analysis:
All these developments need not mean banks will give the go-by to social
banking. Rather than being seen as directed lending such lending would be
business driven, the report predicts. Rural market comprises 74 per cent of the

3. population, 41 per cent of the middle-class, and 58 per cent of disposable
income.
Consumer growth is taking place at a fast pace in 17,000-odd villages with a
population of more than 5,000. Of these, more than 50 per cent are concentrated
in just seven states. Small-scale industries would remain important for banks.
However, instead of the narrow definition of SSI based on the investment in
fixed assets, the focus may shift to small and medium enterprises (SMEs) as a
group. Changes could be expected in the delivery channel for small borrowers,
agriculturists and unorganised sectors also.
Technological Analysis:
Technological developments would render flow of information and data faster
leading to faster appraisal and decision-making. This would enable banks to
make credit management more effective, besides leading to an appreciable
reduction in transaction cost.
To reduce investment costs in technology, banks are likely to resort more and
more to sharing facilities such as ATM networks, the report says. Banks and
financial institutions will join together to share facilities in the areas of payment
and settlement, back-office processing, data warehousing, and so on.
The advent of new technologies could see the emergence of new players doing
financial intermediation. For example, according to the report, we could see
utility service providers offering, say, bill payment services or supermarkets or
retailers doing basic lending operations. The conventional definition of banking
might undergo changes.