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SR.
CHAPTERS PG. NO.
NO.
Executive summary
The Indian banking has come from a long way from being a sleepy
business institution to a highly proactive and dynamic entity. This
transformation has been largely brought about by the large dose of
Phase I
The General Bank of India was set up in the year 1786. Next came
Bank of Hindustan and Bengal Bank. The East India Company established
Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843)
Banking in India originated in the last decades of the 18th century. The
oldest bank in existence in India is the State Bank of India, a government-
owned bank that traces its origins back to June 1806 and that is the largest
commercial bank in the country. Central banking is the responsibility of the
Reserve Bank of India, which in 1935 formally took over these responsibilities
from the then Imperial Bank of India, relegating it to commercial banking
functions. After India's independence in 1947, the Reserve Bank was
nationalized and given broader powers. In 1969 the government nationalized
the 14 largest commercial banks; the government nationalized the six next
largest in 1980.
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listed and traded on stock exchanges) and 38 foreign banks. They have a
combined network of over 53,000 branches and 17,000 ATMs. According to a
report by ICRA Limited, a rating agency, the public sector banks hold over 75
percent of total assets of the banking industry, with the private and foreign
banks holding 18.2% and 6.5% respectively.
Banks like ABN AMRO introduced banking with a coffee. It made a tie-up with
one of the best coffee bar in the country, Barista and remained open till late
evening for customers with a setup of a coffee bar in the premises.
Few banks have introduced world ATM card to make travelers across the
globe more safe and secure. What else. Internet and Phone Banking is the
call of the day for banks.
Top 20 banks in the country from all segments. It is not the ranking of banks
but only for general information about the top banks in India. Those are as
follows:
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2. Banking sector reforms
2.1 Introduction
In the early 1950s, there were only a few banks operating in the
country and their branches were largely located at Mumbai, Delhi, Kolkata,
Chennai etc.
The banking culture then prevailing was essentially different. There
remained an aura around the branches and the banks. The customer would
consider it a unique distinction if he could get an account opened with any one
of the branches of any bank.
The Rules Governing the deposits, advances, withdrawals, opening
and closing of accounts, business timings and holidays were all well spelt out
and were religiously followed. No relaxation thereto was permitted either with
intent to attract further deposits or to improve neither their budgetary position
nor any laxity was allowed to facilitate any customer or to attract any
business.
The total number of Branches of all Banks in the country was less than
1000. Advances were largely on pledge basis security oriented. They
consisted of rice, paddy, cotton, sugar etc., industrial products were not
common. Agriculture lending and lending to other priority sectors was
practically nil, and was not heard of by many.
The above scenario is just five decades back and would be disbelieved
to have existed in the present situation and context.
Sea change
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In the context of industrial Trade & Exchange Rate Policy reforms initiated by
the government of India as a part of the macro economics adjustments, the
question of financial sector reforms which is also an essential adjunct to
economic reforms came up for consideration during 1991. The government of
India therefore constituted a high level committee to review the financial
system and to pave the way for the liberalization of banking practices under
the chairmanship of Shri M.Narasimham (former RBI Governor).
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2.3 IMPORTANT RECOMMENDATIONS OF THE NARASIMHAM
COMMITTEE-PHASE-1
After identifying the weakness, the Narasimham committee has made far-
reaching recommendations to improve the financial health of the banking
system.
b) The high level of Statutory Liquid ratio stipulated for the banks should
be brought down in a phased manner in order to release bank funds
for deployment in profitable avenues.
c) The Cash Reserve Ratio should also be progressively reduced from its
present high level. RBI should use CRR more flexibly for monetary
policy objectives and occasions for using it to control secondary
expansion of credit should be less.
d) Interest rates on CRR & SLR amounts over and above the base level
may be increased to be in tune with market related rates. The interest
rates should also ensure coverage of the average cost of deposits
raised by the banks.
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g) Banks with good market reputation and having profitable operations
may be permitted to approach the capital market for enhancement of
the capital.
h) Before arriving at the capital adequacy ratio the assets of banks should
be evaluated on the basis of their realizable values by adopting
uniform accounting practices in regard to income recognition and
provisioning for bad and doubtful debts.
k) For speedy recovery of the bank’s dues special tribunals may be set up
to facilitate quick decisions because the ordinary courts take a long
time for awarding decrees.
n) The branch licensing of RBI may be abolished and the banks may be
permitted to decide for themselves on the opening of new branches.
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p) RBI may adopt a more liberal approach towards foreign banks in the
matter of opening new branches.
1. Strong banks are to be merged with other strong for creation of Global
Banks.
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2. Equity holding of Government and RBI to be reduced to 33%.5% to
10% of the equity may be offered to Bank employees under stock
option.
5. Wage settlement should be made Bank wise. Right sizing and re-
deployment of surplus staff either by retaining or Voluntary Retirement
Scheme (VRS) with appropriate incentives.
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5. Existing bank laws especially RBI Act, Banking Regulation Act are to
be revamped.
a) Held to maturity
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3. Exposure Norms: Ceiling for Commercial Banks
Minimum capital for entry was set at Rs. 200 crores which will be
raised to Rs. 300 crores within 3 years from commencement of
business.
6. Technologies Development
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The INFINET (Indian Financial Network) which initially comprised
only the PSBs was opened up for participation by other categories
of members. 26 PSBs have achieved the level of 70% of business
captured through computerization by June 2001. Further, the
information technology Act, 2000 has given legal recognition to
creation, transmission and retention of an electronic data to be
treated as valid proof in a court of law.
Conclusion: The banking sector reforms force the challenges towards the
Indian banking system with Liberalization, Privatization & Globalization.
Globalization has but lead to the liberalization of the Indian Banking sector;
like the other sectors opened up, today, the Indian banks need to learn much
more from competition; customers and not advances and customer service is
the call for the day.
About universal banking, due to increasing competition banks need to strive for
customers, thus, offering all at the same desks for corporate as well as individuals
i.e. retail banking is required; public sector needs to have a pace in this arena. A
merger to improve the overall health, reach and customer base, has given a rise to
the trend of mergers globally. The recent merger of ICICI and BOM proves that
customer base has to develop for sustainability. Mergers constitute as a cheaper and
a quicker form of expansion and Indian banks should explore such an opportunity.
As far as rural banks are concerned, GOI has to give personnel better career
prospects in order to get them working, better products and convenience and
safety has to be guaranteed by the bank. Personalized service in a crude form
will help.
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3 Indian Banking and Finance: Managing New
Challenges
New banks,
New financial institutions,
New instruments,
New windows,
New markets & market players,
New competition,
New opportunities along with all this,
New challenges also came into existence.
While deregulation has opened up new vistas for banks to augment revenues,
it has entailed greater competition and consequently greater risks. Cross-
border flows and entry of new products, particularly derivative instruments,
have impacted significantly on the domestic banking sector, forcing banks to
adjust the product mix. The effect of rapid changes in their processes and
operations are in demand to remain competitive in the globalised
environment. These developments have facilitated greater choice for
consumers, who have become more judicious and demanding compelling
banks to offer a broader range of products through delivery distribution
channels. The traditional face of banks as mere financial intermediaries has
since altered and risk management has emerged as their defining attribute.
It is clear that we are at the beginning of this new phase in the Indian
Banking. The recent measures announced by the Government and the
Reserve Bank of India for opening up India’s banking sector to international
investors will further increase the pressure of competition. At the same time
there is renewed emphasis by the Government on the social sector together
with thrust on rural and agricultural lending caught between the competitive
pressure, both domestic and external, and the politics of development, banks
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will have to be on their toes, become even more efficient in managing the
funds and in meeting the needs and demands of customers.
Today, the underlining thing is the role, which the banks will play in the
years to come. If more & more multinational banks start operating in India,
what will happen with the Indian banks?
With all of this there are many more things which are forcing the
challenges towards Indian Banking System.
The players in the Indian banking sector can broadly be classified into
three distinct groups, who although face common issues, are subject to
specific issues pertaining to their sector. The three main segments are the
public sector banks, private sector banks and foreign banks.
It is evident from the table below that the public sector banks constitute
the majority of the Indian banking system, be it by geographical reach or
deposit and credit volumes. The public sector banks which, although in theory
are independent, take strategic direction from their majority shareholders.
They have historically been and continue to be, important mechanisms by
which the government delivers policy promises and maintains confidence in
the banking system.
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As a result of the design of government policies to extend credit to the
rural population and the accidents of failed banks in the Indian system, the
public sector banks have grown to establish a formidable network of
branches. The largest of these is the State Bank of India (SBI), which is the
largest bank in India as measured by the number of branches (over 9,000
branches and 15,000 branches including its affiliated banks) and asset base
(Rs407, 815 cores or $88bn). The large branch networks that are owned by
some of the public sector banks, and particularly SBI, have a significant
advantage over the private and foreign banks, who, although they have well
established operations in the metro cities need to establish better distribution
capabilities in the semi urban and rural areas.
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their technology infrastructure and streamlining their internal processes, this
will absorb both time and resources.
The public sector banks have not traditionally been regarded as very
customer-centric organizations but the advent of private sector banks and
market-savvy foreign banks has changed the competitive landscape in the
Indian consumer banking industry. Although the customer service levels of
public sector banks are now growing to meet the complex needs of
customers, some suggest that there is still a long way to go. Indian banks are
regulated by the Reserve Bank of India (RBI), an autonomous organisation
set up under a specific legislation of the parliament with limited government
control, as per provisions of Banking Regulation Act. The RBI regulates all
banking sector aspects, such as cash reserve ratio, statutory liquidity ratio
and capital adequacy. No one can carry on the business of banking in India
without a license granted by the RBI and all banks have to adhere to a
transparent reporting system of the RBI.
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grow and the urban markets become saturated, they, like the foreign banks,
need to establish an operational network that will reach the wider population.
Also, an emerging trend with the private banks is that they are seeking to
establish a presence in global markets with the aim of attracting lucrative NRI
business.
The third sector is the foreign banks of which there are 42 currently
operating through more than 184 branches in India (see graph below). The
larger foreign banks enjoy strong franchises, both in corporate banking as well
as in retail savings products, among high net worth individuals. That said they
have an increasing market share in retail lending including auto loans, credit
cards and personal loans. Growing acceptance of foreign banks is partly as a
result of the high 'aspirational value' attached by consumers to banking with a
foreign brand. Robust systems, well-defined processes of their global network
and an attractive market have enabled these banks to move from a 'dipping
the toe' strategy to establishing and cementing their foothold in the Indian
market.
Foreign Banks
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Whereas the state and private banks are largely locally incorporated
banks, it is important to note that most of the foreign banks operate as
branches of the parent bank which, due to regulatory considerations, puts a
constraint on the number of branches they can open. In the retail space, if
foreign banks are to participate in the growth of the Indian banking sector on a
footing equal to their Indian counterparts, they would need to establish a wider
distribution network than is currently allowed under the foreign branch
structure.
Although the central bank is meeting and exceeding its WTO commitments
with regard to allowing the branches of foreign banks to be set up, foreign
banks would need to wait for some time before they have flexibility on their
distribution network.
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Ownership and governance of banks (private banks and foreign banks
as discussed previously) is high on RBI's agenda. The RBI is committed to
strengthening the domestic banking sector before allowing further room for
foreign investment and the recent announcement limiting foreign banks from
owning controllership rights of more than 5 per cent in private sector banks is
evidence of this. This presents the foreign banks with a significant challenge
in the race for customer acquisition. In the meantime however, consolidation
among public sector banks, which will seek to merge themselves based on
operational, geographical and asset synergies, is widely believed to be
imminent.
The RBI has issued guidelines recently for the adoption of elements of
the Basel II framework (the Standardized Approach for credit risk and Basic
Indicator Approach for operational risk) with effect from 31 March 2007.
Following the sharp credit growth and in order to comply with Basel II
norms, it is widely believed that Indian banks will need significant capital
infusion over the coming few years. A recent study conducted by a leading
credit rating company in India reveals that if Basel II norms were applied to
Indian banks' portfolio (as at March 2004), capital adequacy would have been
160 basis points (bp) lower than reported. This 160bp decline is a function of
a 70bp gain on credit risk and a loss of 120bp on market risk and 120bp
operational risk. This reinforces the view that although Indian banks have
begun integrating effective credit risk management systems into their
operations, adequate progress needs to be made for the assessment and
monitoring of market and operational risk.
One obvious area for these banks to consider when looking at their
market/operational risk framework is derivative trading which is a relatively
new area for Indian banks (particularly in the more structured products) and is
set to grow further. It is widely accepted that as the volume of transactions
increases, they need to upgrade their current internal control environment and
their middle and back offices.
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Transparency and disclosure standards are also important constituents
of a sound corporate governance mechanism. Although transparency and
accounting standards in India have been enhanced to align in many ways with
international best practices, there are still many gaps in the areas of risk
management strategies and practices, risk parameters, risk concentrations,
performance measures and components of capital structure. Hence, the
disclosure standards need to be further broad-based along with improvements
in the capability of market players to analyse the information objectively. This
will help in their efforts to comply with Pillar III requirements of Basel II.
3.6 Securitization
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assuming increasing importance in the emerging environment. Besides
making banks more accountable and responsive to better-informed investors,
these processes enable banks to strike the right balance between risks and
rewards and to improve the access to markets. Improvements in market
discipline also call for greater coordination between banks and regulators.
Since the early 1990s, banking systems worldwide have been going through a
rapid transformation. Mergers, amalgamations and acquisitions have been
undertaken on a large scale in order to gain size and to focus more sharply on
competitive strengths. When banks were allowed to undertake leasing,
investment banking, mutual funds, factoring, hire-purchase activities through
separate subsidiaries. By the mid-1990s, all restrictions on project financing
were removed and banks were allowed to undertake several activities in-
house. In the recent period, the focus is on Development Financial Institutions
(DFIs), which have been allowed to set up banking subsidiaries and to enter
the insurance business along with banks. DFIs were also allowed to
undertake working capital financing and to raise short-term funds within limits.
It was the Narasimham Committee II Report (1998) which suggested that the
DFIs should convert themselves into banks or non-bank financial companies,
and this conversion was endorsed by the Khan Working Group (1998). The
Reserve Bank’s Discussion Paper (1999) and the feedback thereon indicated
the desirability of universal banking from the point of view of efficiency of
resource use, but it also emphasized the need to take into account factors
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such as the status of reforms, the state of preparedness of the institutions,
and a viable transition path while moving in the desired direction.
The need to proceed with planning and foresight is necessary for several
reasons. The move towards universal banking would not provide a panacea
for the endemic weaknesses of a DFI or its liquidity and solvency problems
and/or operational difficulties arising from under capitalization, non-performing
assets, and asset liability mismatches, etc. From the point of view of the
regulatory framework, the movement towards universal banking should
entrench stability of the financial system, preserve the safety of public
deposits, improve efficiency in financial intermediation, ensure healthy
competition, and impart transparent and equitable regulation.
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Recognising the importance of payments and settlement systems in the
economy, we have embarked on technology based solutions for the
improvement of the payment and settlement system infrastructure, coupled
with the introduction of new payment products such as the computerised
settlement of clearing transactions, use of Magnetic Ink Character
Recognition (MICR) technology for cheque clearing which currently accounts
for 65 per cent of the value of cheques processed in the country, the
computerization of Government Accounts and Currency Chest transactions,
operationalisation of Delivery versus Payment (DvP) for Government
securities transactions.. The coverage of Electronic Clearing Service (Debit
and Credit) has been significantly expanded to encourage non-paper based
funds movement and develop the provision of a centralised facility for
effecting payments.
A recurring theme in the annual BECON Conference has been the need to
focus on developing human resources to cope with the rapidly changing
scenario. The core function of HRD in the banking industry is to facilitate
performance improvement, measured not only in terms of financial indicators
of operational efficiency but also in terms of the quality of financial services
provided. Factors such as skills, attitudes and knowledge of personnel play a
critical role in determining the competitiveness of the financial sector. The
quality of human resources indicates the ability of banks to deliver value to
customers. Capital and technology are replicable, but not human capital which
needs to be viewed as a valuable resource for the achievement of competitive
advantage. The primary emphasis needs to be on integrating human resource
management (HRM) strategies with the business strategy. HRM strategies
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include managing change, creating commitment, achieving flexibility and
improving teamwork. These processes underlie the complementary processes
that represent the overt aspects of HRM, such as recruitment, placement,
performance management, reward management, and employee relations. A
forward looking approach would involve moving towards self-assessment of
competency and developmental needs as a part of a continuous learning
cycle.
The Indian banking industry has been an important driving force behind the
nation’s economic development. The emerging environment poses both
opportunities and threats, in particular, to the public sector banks. How well
these are met will mainly depend on the extent to which the bank’s leverage
their primary assets i.e., human resources in the context of the changing
economic and business environment. It is obvious that the public sector
banks’ hierarchical structure, which gives preference to seniority over
performance, is not the best environment for attracting the best talent from
among the young in a competitive environment. A radical transformation of
the existing personnel structure in public sector banks is unlikely to be
practical, at least in the foreseeable future. However, certain improvements
can be made in the recruitment practices as well as in on-the-job training and
redeployment of those who are already employed. There are several
institutions in the country which cater exclusively to the needs of human
resource development in the banking industry.
Financial products are becoming increasingly complex and diverse, while the
markets in which they trade get progressively deregulated. The need to adopt
global best practices in financial sector regulation and supervision, and adapt
them to the domestic environment, places a premium on the skills and
expertise of the Bank’s human resources.
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banks need to be viewed not only with the day-to-day needs of operational
necessity, but also with analytical content and policy foresight.
Conclusion
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There is no doubt that India presents a huge opportunity for the banking
sector but, as outlined above, there are various hurdles that need to be
overcome before the true potential can be realized. Further we will learn the
major hurdles in Structure, Technology, Security and Human Resource
Management that forcing challenges towards Indian banking system.
4.1 INTRODUCTION
The year 1992 proved calamitous to the Indian Banking System owing
to the scam-tainted stock market. Large proportion of household saving
moved in to the banking system, which recorded an annual growth of 20% in
deposits. But along with the continuous growth and modernization, several
challenges still confronted the banking sector.
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But along with the continuous growth and modernization, several
challenges still confront the banking sector. The main challenges are the
deployment of funds in quality assets and the management of revenues and
costs. The problem of NPA’s (Non-Performing Assets) and the overall credit
recovery system exist too.
In the period ahead, our financial system will also have to prepare for
the tightening of prudential norms as the new Basel Accord becomes effective
and a fuller response to the current financial environment emerges. Following
are the challenges before Indian banking i.e.
• Technology,
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• Research and human capital,
Income recognition,
Assets classification, provision for bad and doubtful debts and
Capital adequacy
First, the income recognition norms reflect a true picture of the income
and expenditure of the bank. Earlier to these norms, banks used to book
profits even though the income was receivable, however after these norms it
is mandatory for the income to be realized rather than hope of receiving
income.
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provided to implement the same and ensure that the systems become
compliant to the precise guidelines. The solution on this was, supported by
capitalization of the public sector banks to ensure that over a given timeframe,
they could comply with the norms. However, in reality the banks in general
had to struggle to march with same speed in the future which highlighted the
situations in which the banks were functioning. These norms were gradually
tightened and beginning with the April 1998 Monetary Policy, they were made
applicable to the government guaranteed advances as well. Provisioning will
also have to be made for advances which are both non performing and
performing.
The reforms measures were aimed at not only liberalizing the regulatory
framework, but also to keep them in tune with the international standards. And
since the banks had to move from a highly regulated environment to a
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deregulated environment, some of the public sector banks had to bear the trial
of reformation. In an attempt to stabilize the bank position during the transition
phase, the Government contributed capital to a few among the week-
nationalized banks to set off their accumulated losses against their capital. All
these measures were taken in order to ensure that the Indian banking system
reaches the global standards.
One area that has been a constant source of concerns for Banks and the RBI
alike is the menace of Non – Performing Assets (NPA) or the bad and
doubtful debts of the banking system. The NPAs levels are more in India as
compare to the other advanced countries. The gross NPA is still over around
Rs. 83,000 cr. The government and RBI have taken several initiatives toward
managing NPA. In this regard, a new ordinance on Securitization and
Financial Asset Reconstruction and enforcement of security interest has been
created in the year 2002, which would help in speedy recovery of bad loans.
3.8
4 PUBLIC SECTOR
3.5 BANK
2.9 NEW PRIVATE
3 SECTOR BANK
2.5
2
RATIO
1.5
1
0.5
0
SCHEDULE OLD PRIVATE FOREIGN BANK
COMMERCIAL BANK SECTOR BANK
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4.5 Mergers & Acquisition: -
It is perceived that too many banks are operating in the same area, many of
them being small in size of assets, and due to its low asset size in its portfolio
these small banks not play their role efficiently. The smallest of the older
private sector banks, The Ganesh Bank of Kurundwad had an advance
portfolio of Rs. 98 crore as at the end of the March 2003 and five others had
advances less than Rs. 1,000 crore. Such a low assets base is not good
enough to withstand any stock that may arise in the normal course of
business. In Banking, size does matter. The main question is raised whether
they can really compete and is their size comparable to internationals Banks.
One of the solutions on this problem is to consolidate and merge with the
bigger banks, which can compete effectively in the International arena.
The increasing competition and shrinking profit margins have also led to
the voluntary merger of the banks for gaining competitive edge, such as –
Merger of Bank of Madura (BOM) with ICICI Bank – BOM had good
presence in the Southern parts of India, and ICICI wanted such exposure,
therefore the mutual agreements led to the voluntary merger,
Times Bank merged with HDFC Bank – this was to optimize the presence
in India as well as the global presence. As HDFC was only known to the
housing sector earlier, therefore merger gave them the foundation for entering
into the markets,
ICICI Bank merged with ICICI Ltd – It was foreseen that the existence as
only the financial institution is not feasible in the current market scenario
where “One stop policy” is the commonly understood. There is no
demarcation of some banks providing only Project / green field loans & some
meeting short & medium term loans. Therefore there two have to merge to
form one formidable entity to face the competition collectively.
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4.6 Strengthening the legal framework: -
With this private sector can also bring into the purview issues relating to: -
• Market Discipline,
• Corporate Governance,
• Credit rights
The new standards and codes are not final goals but instruments to
enhance efficiency in the financial intermediation while ensuring financial
stability as well.
(a) Legal,
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(c) Market Practices by participants.
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them doing it themselves. A number of new private bank and foreign banks
with large volumes of business have started outsourcing, some of their
activities like - Clearing operation and ATM maintenance are handed over to
outsourcing agencies, where as market functions for Deposit mobilization,
Retail loan and Credit card business are done through Direct Selling Agent
(DSAs). Routine back office jobs are either centralized or completely
outsourced, leading to branch staff taking up more market functions with a
customer centric approach at the branch level. Because of the Outsourcing,
about 25,000 jobs in the financial sector have moved up into the country for
the last two years. The numbers will go on increasing. According to a Deloitte
study on the subject, it is estimated that $ 400 billion worth of financial
services will be outsourced to offshore location by 2010. The argument in
favor of outsourcing is to cut costs, especially of manpower, and transfer the
responsibility of compliance with the associated risk to a willing third party.
This would entail banks, sticking to the business of taking risk, addressing
assets-liability mismatches, managing cash-flows for clients and providing a
one-stop shop for all financial services to a cross-section of users.
The Private sector banks have achieved a great degree of success in their
experiments with this concept. Banks should not fully rely on the bankable
outsourcing. There is a danger of over-reliance on such parties, which may at
a later date place the institution at risk. For instance, privacy laws that may be
on the anvil to protect confidential information of clients can set severe
penalties for any slippages or disclosure of information to unauthorized
persons. Banks have to take proper precautions with this new concept while
giving the work to them. The board of directors must be held accountable for
the outsourcing policy as well as the activities undertaken under them.
The outsourcing guidelines that are being worked on are quite timely.
Perhaps, the RBI ought to persist that outsourcing of activities should not be
treated as an abdication of responsibility.
In future the banks will be slim & trim in their physical size & structure
and not in the business volume, with the emphasis on automation and
outsourcing of different services (some discussed above) so that they can
43 | C h a l l e n g e s B e f o r e I n d i a n B a n k i n g S y s t e m
tackle the increasing volumes of business efficiently and effectively and
become competitive in relation to foreign and private sector banks.
Over the last few years the treasury departments of banks have been
responsible for a substantial part of profits made by banks. Between July
1997 and Oct 2003, as interest rates fell, the yield on 10-year government
bonds (a barometer for domestic interest rates) fell, from 13 per cent to 4.9
per cent. With yields falling the banks made huge profits on their bond
portfolios. Now as yields go up (with the rise in inflation, bond yields go up
and bond prices fall as the debt market starts factoring a possible interest rate
hike), the banks will have to set aside funds to mark to market their
investment. This will make it difficult to show huge profits from treasury
operations. This concern becomes much stronger because a substantial
percentage of bank deposits remain invested in government bonds.
4.12 Total bank assets to GDP ratio:- banks in India, the scope of expanding
their loan portfolio is, really, vast. The total bank assets to GDP ratio for
India and a few other countries was-
44 | C h a l l e n g e s B e f o r e I n d i a n B a n k i n g S y s t e m
Indonesia 101
South Korea 98
Thailand 112
Malaysia 166
Canada 154
UK 311
Germany 313
USA 66
On the basis of above data, we can infer that Indian Banks are still not
contributing their part significantly in the GDPs as compared to the other
countries. Banks have to capture the major part of GDP by enhancing their
operational role. This is one of the challenges before Indians banks to
increase the ratio of advances to GDP, and the solution of this is to increase
the resources. And the resources can be raised from two segments: -
4.12.1 Banks have to invest less in the government securities, which are risk
free investment in credit, but not market risk; in the same way, banks should
lend more and more to infrastructure, industry, agribusiness, commerce and
individuals. Banks invest in government securities because of the miniscule
growth in the industrial sector for the past 5 years. Both the central and state
governments seem to have an inexhaustible appetite for borrowings to meet
current revenues expenditure in the form of interests payments and salaries.
4.12.2 Indian Banks should also tap resources abroad and lend in India. But it
is possible if banks are permitted to lend to Indian borrowers in US dollars,
euro and other major currencies by borrowing in the foreign financial markets.
But there are attendant problems in the form of fluctuation risks, which banks
will pass on to the borrowers. But, if there is systematic onslaught like, the
one-faced by Southeast Asia in 1997, the entire edifice may collapse. To
effectively tackle these issues, the RBI should guide banks to adopt scientific
risk management techniques. Recently, many of the Indian companies /
Banks have entered the foreign markets to tap the cheaply available dollars in
USA and the Japanese Yen and also the Euro dollar which is growing in
stature to compete with the US dollar.
45 | C h a l l e n g e s B e f o r e I n d i a n B a n k i n g S y s t e m
Analysis
Challenges before Indian banks are of wide range. But one of that is in
the structure. The changes have been made in structure of Indian banks due
to Liberalization, Privatization, & Globalization mainly. To face the global
competition effectively, structure has been changed. But still it is in the way.
What are the challenges in structure, which we have discussed above? But
here is the question raised that some private banks & nationalized banks are
confront them, but how weak public sector banks and small banks tackle this
situation. There are not only challenges in structure but also in I.T, H.R
(Human Resources), Services. They are not able to tackle these challenges
as effectively in compare to Private Banks & foreign Banks. Banks have to
solve the problems in Non Performing Assets. And for that, the Indian Banks
have to measure the risk involved in lending advances. To meet capital
adequacy requirement in balances sheet, the banks reduce their liability in
compare to assets. The major question is raised how weak banks survive in
this global competitive world.
Because of the traditional background, the Indian banks are not able to
implement the prudential norms. Foreign Banks and Private sector Banks are
financially strong therefore they used outsourcing in most of their operations,
and reduce the costs at the same time. Nationalized banks are not applying
these techniques to make the growth. They are not that much familiar with this
concept. Banks participation in G.D.P. is very low in compare to the other
countries. Banks have to prevent themselves in relate to interest rate risk
which affect the bank’s balance sheet significantly. In India, significant parts of
the total advances are non-performing. Market share of the bank.
Suggestions:-
46 | C h a l l e n g e s B e f o r e I n d i a n B a n k i n g S y s t e m
outside the purview of BIFR, DRT, etc. Efforts are being made to make
CDR mechanism.
3. Another major step in this direction has been the introduction of One
Time Settlement Scheme (OTS). The success of OTS has been
modest. Under both the OTS schemes, i.e. up to Rs. 5 crore and up to
Rs. 25,000 banks could recover only around Rs. 3000 crore.
4. The Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Ordinance, 2000 has been another
major initiative from the legal side. This legislation would provide a
comfort level to banks in tackling the problems of NPAs.
5. The creation of Asset Reconstruction Company provided banks a route
to dump their bad loans at market value after writing them off.
6. Non Performing Assets can be effectively brought down if there is
greater transparency in the system.
7. Universal Banking is one of the solutions on lot of problems. Now it is
the need of the banking sector to set up Universal Banking. Universal
banking on the one hand to cover a wide range of risks and at the
same time reducing the wage bill.
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5 Challenges Before Indian banking system in
technology
The most important challenge that the Indian banks will have to face
will be the challenge aided by Information Technology (I.T). The degree of
computerization and the consequent benefits in efficiency, which the banks
derive, is not comparable to foreign banks, which will perhaps be playing an
increasingly important role in domestic market. Private sector banks and even
co-operative banks are seems to have taken computerization more effectively
other than Nationalized Banks. Credit must be given to Indian Banks who
have brought on the new wave of techno-banking in the country. Integration of
domestic markets with international financial markets has been facilitated by
tremendous advancement in information and communication technology.
The future of banking is poised for reaping the full benefits of the
developments in the field of knowledge and information technology. The
knowledge oriented and technology driven banking may metamorphosed the
entire Indian Banking scenario.
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Need for standardization – across hardware, operating system,
system software, application software to facilitate inter connectivity
of system across branches.
Need for high levels of security – In an environment, which
requires high level of confidentiality, security is an important
requirement. This also has to be addressed while entering into BPO
activities.
The next logical approach would be towards communication
and networking- use of networks would facilitate centralized
database and the distributed pricing. Exploitation of computer
network by banks would result in saving in cost and would increase
its efficiency. The networking would increase the transmission and
dissemination of required information within short time, which will in
turn help in taking timely decisions.
Need for a technology plan which will have to be periodically
monitored and also to be upgraded consequent to changes in
technology itself?
Need for business process re-engineering with the large-scale
usage of computers- the objective is not to merely mechanize
activities but to result in holistic benefits of computerization for both
the customer and the staff at branches.
Need to address the issue of human relations in a computerized
environment especially from the point of Human Resource
Development.
Sharing of technology experience so as to reap the benefits of
technology implementation across a wider community.
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established practices of today may also have to not only continue but also co-
exist along with the new requirements.
5.3 Another major challenge relates to the bridging of the divide caused by
distances. Today, banking has broken all geographical barriers and demand
from customers relating to ‘Anywhere and Anytime Banking’, which is also
expressed as “365 Days 24 Hours anywhere banking”, has helped to meet its
requirement to a great extent. Currently, IT based offerings such as –
Electronic Banking, Internet Banking, Phone Banking and Card Banking have
50 | C h a l l e n g e s B e f o r e I n d i a n B a n k i n g S y s t e m
provided customers with the means for meeting the requirement of being able
to perform banking transactions from anywhere.
5.4 One of the challenges that are overcome by banking industry is digital
divide while the average Indian customer may not be a technology savvy.
All technology-based offerings by banks are biased towards the major
towns and cities and the need for reaching the mid size cities as well as
the large rural population assumes insignificance. However, these pockets
promises substantial growth prospects and today with networking
capabilities available at much higher and reliable levels than before at
affordable costs, banks will have to pay attention to these segments of the
country as well. The banks will have to create more user friendly software
programmes which would provide banking services with the help of audio-
visual techniques to help consumers / investors so that the less educated
people can also avail the benefits of banking.
5.5 Banks will also have to re-orient their internal processes and
procedures. Just as mechanization of processes in a manufacturing
company required changes in the steps involved in the production cycle,
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suitable changes in the job processes within banks will also have to be
made. No technology implementation is complete without the attendant
changes in the basic way of process functions at the organization where
such implementation shave been made, and if technology implementation
have to be successful, then they have to be accompanied by suitable
changes in the process flows across all sectors of economy, which is at
the base of Business Processing Re-engineering (BPR). It is essential that
banks embark upon Business Process Re-engineering in a large scale and
prefer even for the large-scale implementation of technology. The BPR will
no doubt take some time in finalizing its utility in the current set-up of the
banking industry, but it will definitely in the longer run to otpimise its cost
and increase efficiency.
ANALYSIS
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Technology is obtaining lion share in this new era of the operations of
the Indian banking industry. It plays a key role to expand the business in the
significant way. The concept of technology is better knowned by the Private
banks and foreign banks. The deployment of technology is very less in Public
Sector Banks because it require huge capital source. Private banks and
foreign banks are already technology initiative. Whereas public sector banks
and old private banks are having less capital compare to private and foreign
banks. Technology also provides help to various services like ATMs, credit
cards, and debit cards. Technology also reduces the cost, manpower. In
implementing technology the security is also important, to manage the
security. Security is very important in relate to customers. Banks have to
manage this challenge for implementation of technology effectively and
efficiently. The one of the challenge before Indian banks is to give knowledge
to the banks employees. In old private banks and public sector banks have
the old generation working in their banks, who does not have any computer
background. This is challenging task for banks. The delivery of products and
services need extensive use of information technology necessitating high
magnitude of investment. However, with a view to enhance the quality of
customer service as also to enhance the quality of control one of the prime
thrust areas for the future would be completion of branch computerization and
networking of banks. This would also necessitate putting in place of
appropriate legal and security system.
Suggestions
1. For a good security policy, the role that the human beings have in a
secure computerized environment.
2. It would be advisable to build security at the application level in respect
of banking oriented products.
3. There are present a number of security standards available for different
financial applications; most of them are international standards should
be examined and adopted keeping in a view the re2quiremnet of the
banking industry.
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4. There is an imperative need to imbibe a culture of security among all
operative functionaries-whether officers or other staff.
5. Security requirements have to be provided from a two-pronged
perspective- first for the internal requirements of the banks themselves
and second relating to the legal precincts of the laws of the land. It will
be a matter of satisfaction to note that the INFINET (Indian Financial
Network) is a safe, secure and efficient communications network for
the exclusive use of the banking sector.
6. Effective security policy supplemented by education and training in
these areas and reinforced by the actions and concerns of the top
management so that a culture of security can be created.
7. It would necessitate that banks operate in an environment, which will
facilitate ease of inter- operability. Just as inter- operable IT systems
and Straight through Processing (STP) will become order of the day,
inter-operable business domains will also prevail banks to overcome
this challenge to their stride.
LEAN,
MEAN, and
HUNGRY.
6.2
6.2 Retention of customers: -
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Retention of customers is going to be a major challenge before Indian
Banks. According to a research by Reichheld and Sasser in the Harved
Business Review, 5% increase in customer retention can increase profitability
by 35% in banking business, and 125% in consumer credit card market. Thus
banks need to emphasize retaining customers and increasing market share.
And for this, Indian Banks have to provide them various types of services as
per their suitability. Banks should build long-term relationship with the
customer by giving them extra attention & extra facility. Personal touch is an
essential element in building a long-standing relationship with customer,
which has mutual trusts as the basic foundation. Retaining the existing
customer is more cost effective than adding a new customer to our portfolio.
To Establishment,
To Development,
To Maintenance and
To Optimise
The survey has been made to know, how far Indian Banks familiar with CRM
concept. The aim was to identify the scope of CRM in the Indian Business
Scenario.
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Some Banks were selected from different category of Banks classification
for survey. The survey was made through questionnaires
Struc
ture of the
Questionnaires
1 Organizational Information
2 CRM strategy
3 Strategic Changes
5 Performance
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Degree of Interest
Based on above Data, we may notice that the Indian banks are still in
the initial phase of CRM implementation while some foreign and private sector
banks already taken huge strides in implementing the technology. Public
Sector Bank still has a long way to go in adopting the new technology and
effectively implementing it to provide world-class service to the customer.
The strategy point for developing CRM must be determined from
the strategic review of the organizations current position.
In India, the Public Sector Bank are not yet fully computerized.
Therefore 50% of the jobs are still done manually and the other 50% is
computerized. This yawning gap between the public sector banks & private/
foreign banks is due to the way in which these banks have utilised the more
innovative & technology into use to attract new customers / investors. The
utilization of modern techniques has provided the manpower in these banks to
concentrate on expansion / attractive techniques rather than doing the routine
internal jobs. Indian Banks will have to take suitable steps and make progress
to sustain the competition as early as possible.
The computerization in Foreign and private Banks, have significantly
reduced the cost in their business. Whereas Public Sector Banks have failed
to reduce their cost. The benefits arising from the computerization on one
hand is to attract the customers while on the other hand is to reduce the cost
of the business. Public Sector Banks have to enhance the percentage of
using computerized techniques in their day-to-day business activities. CRM
strategy increases the quality of the banks. CRM reduce the cost and conduct
functions efficiently.
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KYC also aims at knowing your investor fully. The simple message that
flows from KYC information is that – if you are knowing your investor /
customer thoroughly & the activities he is performing or desires to perform in
future, then as a banker, you will be able to satisfy his needs more effectively.
Knowing the customer helps in satisfying his requirements more aptly, thus
helping the customer would also in turn help the bank by selling their
products.
6.5 Impact of I.T on banking services: -
In India only 14% people use credit card as compared to the population. In a
country 49 million debit cards and 20 million credit cards in circulation: India
has around five different acquiring networks for around 18,000 ATMs
available. The total number of transactions that occur on these ATMs per day
is around 190, 00,000. Banks have to enhance the vast volume of cards. The
bilateral of sharing arrangement is towards processing these transactions of
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around 200,000 that occur on various consortiums of ATM networks. There
are two types of networks present in the country. Banks should enhance in
the number of credit card users in coming year by providing different services
with credit card. Many debit cards have also entered into market providing
additional services like – Petro cards by HDFC Bank / ICICI Bank etc.
ANALYSIS
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private sector banks have to compete with them effectively and efficiently.
These banks still apply the traditional approach towards services. Public
sector banks and foreign banks are not customer oriented, they are mostly
profit oriented. Indian banks have to change their mind set to meet the
competition in the global level. Indian Banks have a lot or challenge in
services. Indian banks have to apply different techniques of providing various
services to the customers.
Suggestions:-
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7 Challenges before Indian banking system in
Human resource management
There is a move afoot to entrust some of the banks with the entire
responsibility for personnel functions, such as wage negotiations and
recruitment. As of now, these tasks are undertaken either by the Indian
Banks’ Association or the recruitment boards set up for the purpose. Sudden
transfer of these functions may find these banks woefully ill-equipped to
handle them. It is, therefore, necessary to begin with listing out the problems
involved before looking for solutions
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The last few years witnessed an exodus of qualified and experienced staff.
The environment of vigilance inquiries and the problems on account of
frequent transfers might have led these qualified and experienced staff to
decide to opt out with the introduction of pension schemes. The introduction of
Golden Handshake voluntary retirement scheme in the year 2000 has made
the public sector banks virtually bleed a very sizeable portion of their
performing personnel. Even after the introduction of golden handshake
voluntary retirement scheme the problem of overstaffing has not been totally
solved. The overstaffed cadres still remain with the banks and the areas
where there is further requirement have been further depleted in strength due
to this scheme.
Training institutions are trying desperately to make things happen. But they
themselves lack the much needed support and clarity in approach. Some may
condemn these prime bodies as a resort for non-performers and for those
who want to escape from rough and tough routines of an active bank branch
life with constant interaction with the customers. Naturally the deeply
committed and devoted may be overlooked in selection to these training
institutions. The result: poor performance by these trend setting and concept
building institutions. The list can be expanded but that will make the picture
much bleaker. The task before the personnel departments is to reorient
themselves quickly and to get on with work immediately
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problems crippling our personnel departments can be traced to the personnel
departments themselves. They lack essential skills in developing manpower
plans, building up appraisal systems, etc. Nor is staff, competent enough to
handle such tasks, readily available. An innate belief that availability of
manpower in a country with growing unemployment should not pose any
problems is the basis for the neglect.
The emphasis has to shift from industrial relations to manpower planning and
development. The personnel departments must be involved in various
activities, be looked on as an integral part of management and be equally
responsible for business results. In these charged competitive days Personnel
departments must be actively involved in the process and preparation of
business plans and strategies. They must be thoroughly committed to the
fulfillment of such plans. Compared to business planning, manpower planning
takes much longer to become operational. Therefore departments should
rightly be working on plans for two years ahead. In any case, for some of the
banks the prime necessity is to retain their separate existence and survive in
the face of emerging challenges. A live recent example in comparison is the
position of Global Trust Bank.
The next priority would be to deal with some of the archaic arrangements.
Many of them stem from a basic distrust and mutual suspicion. There are a
number of rules governing transfers. The hardships involved on account of
two income families becoming the norm, and diverse educational standards
and systems are innumerable. Banks really should ask the question as to the
purpose for such transfer. It is a naïve belief that a person becomes prone to
corrupt practices after a lapse of time.
Bank officers and staff oppose such changes when they appear to be
divorced from any of the above aspects. Further, the moment transfers /
placements / vigilance cases are used to punish, chastise, or discipline
officials they lead to a total functional disruption and amount to an
organization punishing itself. The costs incurred on account of transfers of
officers are also significant and the bank managements may have to reckon
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them correctly and properly. Perhaps the banks can begin to analyze what
they expect to achieve by undertaking such transfers.
7.4 Changing mindset
The personnel functionaries need to break out of the present mentality and
acknowledge that dogmatic adherence to the rules and their implementation is
the key to their success. The banks can ill afford adherence to irrelevant rules.
Personnel departments need to introduce technology in their working.
Computers have far better uses than mere salary sheet preparation.
Emphasis has to shift from fire dousing to developing executives for
tomorrow. There could be no doubt on suitable alternatives. A number of
banks have started with the help of consultants, the process of reorganization
and restructuring. One thing, however, stands out. World wide experience has
shown that organizations are in a flux. Considerable changes through process
re-engineering, etc., are going on with the avowed intention of meeting the
new challenges. Organizations are becoming flatter and leaner. It does not
follow and mean that we should also go the same way. But the status quo
cannot be continued
In the changed content and context, bank managements may have to adopt
an objective, transparent policy even in routine personnel functions such as
transfers and placements. Increasingly, organizations have started to focus on
and strive to retain staff. An essential pre-requisite for the successful
implementation of these policies is the belief amongst the staff that there is
objectivity and fair play. Managements may sometimes be unwilling to give up
what they treat as their prerogative or patronage.
Conclusion
According to Dr. Bimal Jalan, former Reserve Bank of India Governor "capital
and technology are replicable but not human capital which needs to be
viewed as a valuable resource for the achievement of competitive advantage."
Jack Welch, former CEO of General Electric, has commented "outside of the
CEO, HR is the most critical function in any company. Development of leaders
is the ultimate responsibility of every CEO and thus is an integral part of HR. I
saw my job as allocating people and dollars to opportunities. I wasn't
65 | C h a l l e n g e s B e f o r e I n d i a n B a n k i n g S y s t e m
designing products. I was putting people where I thought they were right for
the job. I did that with my partners in HR." According to Wharton Management
Professor Nancy Rothbard "If top management doesn't see value in
having HR as a strategic partner -- and if HR can't think out of the box in
that role -- then the partnership is probably not going to happen."
Analysis
Private sector banks and foreign banks came out with efficient
manpower in their initial stage, but old private banks and public sector banks
faces lot of challenges in Human Resources. These banks have old
generation employees who are experienced personnel even though they are
not knowledge based personnel.
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After reform, many of the banks introduce VRS scheme. This
scheme also arises many challenges before Indian banking.
Suggestions:-
8. The banks should immediately formulate and proactive HRD policy and
plan on the basis of conducting a study about the present and future
skill needed and the availability of present skills.
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8 Corporate Social Responsibilities In Indian
Banking: An Indian Perspective
Corporate social responsibility
Introduction:-
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CSR is also known as corporate responsibility, corporate citizenship,
responsibility business, sustainable responsible business (SRB) or corporate
social performance is a form of corporate self regulation integrated into a
business model.
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To highlight the role of banks in CSR, the RBI circulated a notice on
December 20, 2007 for all the scheduled commercial banks with the title
“corporate social responsibility, sustainable development and non financial
reporting – Role of Banks”.
2) Sustainable Development
Apart from these international initiatives, RBI report also talked about other
important & urgent issues regarding:
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is to highlight initiatives that work & to reward progress on the journey towards
sustainability.
Implications global growth for carbon missions and climate change policy
states that the rapid economic growth of emerging countries such as China &
India – together with continued and more moderate growth in advanced
economies – could have serious long term consequences for global energy
consumptions and carbon emissions.
Environmental Degradation:
Edward Luce, the author of the book titled ‘ in spite of the Gods’ which deals
with the rise of Modern India, has referred to ‘ wholesale environmental
degradation’ as the second large challenge facing India. According to him
whole India accounts for 4% of the global carbon – dioxide emissions, its
share of the responsibility for global warming will escalate rapidly as the
economy is improving (without being factored in the sake of both its
environment and its economy.
Carbon Trade:
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2. Clean Development Mechanism (CDM):-A developed country can
sponsor a greenhouse gas reduction project in a developing country.
The CDM is designed to meet objectives to address the sustainable
development needs of the host country.
Indian Scenario:-
RBI assistance to Mahindra & Mahindra Financial Service Ltd. for the
year 2008 the company has complied with all the applicable regulations of the
Reserve Bank Of India. RBI then assisted it by providing additional
provisioning for NPAs at a faster rate than that prescribed by RBI for NBFCs.
In the earlier years also the company continued to involve itself in social
welfare initiatives by contributing to recognised charitable institutions, which
specifically benefit the economically disadvantaged & socially weaker sections
of the society.
During the year 2008, the company contributed Rs.82.2 lacs towards
Corporate Social Responsibility to various institutions for charitable purposes.
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mindset RBI follow is that a deposit account is the gateway to financial
inclusion & its approach is to connect people & use multiple channels to
expand outreach.
Disha financial counseling, a trust under the aegis of ICICI Bank & the
Reserve Bank of India (RBI). On Wednesday jointly unveiled the first comic
book on basis of banking, as part of RBI’s strategy to promote financial
literacy in the country. The comic aims to educate the school children on
importance of saving the future.
ICICI Bank wanted to teach Banking to school children and its main muse for
this cause was the Reserve Bank of India which has been exhorting banks to
educate the public about the basics of banking. When ICIC asked for help RBI
was more than willing to the role of publisher & teacher for the cause.
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RBI also assists to the lay man in debt management & counseling. RBI allows
people to walk in to the Disha (The NGO Front of RBI) offices where they are
provided counsel on managing their debts. If someone has Rs. 20 Lakh loan
and he is overwhelmed, we try to help him by talking to his bank &
rescheduling his installments.
Subsidiaries:-
(1) Serious and committed approach to CSR is increasing its reach, but
there is vast ground yet to be covered.
(3) Corporate are realizing that “Good for business is good business”.
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Constraints of CSR:-
Bank should make sure that the companies for which they are
financing or investing incur the risks that the impacts due to their anti-
environmental and special issues include:
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• Fines
• Legal claims
• Regulatory delays
(2) Measurable;
(4) Have the potential for both near and long-term impact.
Conclusion
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Financial institutions can do a lot to assist efforts for corporate social
responsibility and achieve sustainability. Financial institutions not only ensure
that internal activity is sustainable, but they can also help financing itself
become more sustainable.
The follow up of the equator Principles and other CSR supporting measures
shall be strictly dealt and implemented. Until and unless environmental
authorities are serious ans stricter about this, the financial institution will face
a lot of problems.
There would be general social and economic benefits that would accrue to
society, if business recognized broader social goals in its decisions.
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which he expects to mobilize 100 tons of gold in the first year itself) and
insurance, and the challenges facing SBI.
SBI is pioneers in IT. They started deploying technology sometime in
the mid 60s. That was the time when they first had the punch card system of
computers. In the mid 80s, they started an experimentation of sorts where
they selected about five solutions to be deployed in branches as a full branch
computerization. That is what it used to be called in those days. There was
nothing known as core banking at that point of time. These solutions they
implemented in some 8-10 branches as a back office system, where their
branch was functioning as a regular branch, but day-end vouchers used to be
posted in that system. In 1991 they entered into a contract with Kindle, an
Irish company. There was a global tendering process before the Bank master
application was selected. They went for an application that could be deployed
not only in SBI and all its group branches across the country, but also in their
offices abroad. they gradually started implementing Bank master in a few
selected branches during the initial years. During the mid-90s they started
deploying this application in around 600 branches in India. By 2003, all
branches had been computerized using Bank master application.
The challenge faced by SBI during the transition from the manual
system to computerized one is that people were not comfortable with the
keyboards. Secondly, computerization also resulted in some process
changes, and change management. This was the biggest challenge.
Structure:-Their IT infrastructure is spread over the country. They have their
main servers in Belapur, and an equivalent set up at their DR site in Chennai.
For connectivity, routers are placed at various places in the country. their
assets are spread over the country, but their major assets are in this office
because the main servers is in Belapur. Today they are running a network
which is probably bigger than some network service providers. they already
have nearly 11,000 offices which are connected there. They also have IP
telephony which operates on their internal network and not any telecom
service provider's network. Every branch which is on core banking necessarily
has this too.
Presently, there are 4,750 branches which have migrated from Bank
master to the core banking solution. In February and March, when their
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annual closing exercise begins, they generally stop migration and
recommence it from April 15 onwards. Next year there is hope that they will
complete core banking in all their banks. they have around 9,500 branches in
SBI. They also have seven subsidiary banks. All those banks, around 4,700
branches, have been put on core banking. they don't open any branches now
without the core banking facility. Now they are in the process of converting all
those branches computerized on the Bank master system to core banking.
They expect that in due course of time they will have a customer base of 150
million.
Technology:-When it comes to the technology, SBI is having 6,000 ATMs
spread across more than 1,600 centers across the country. There is no any
district which is not covered by SBIs ATMs. Today SBI have the largest ATM
network in the country, and they are in the process of installing 2,000 more
ATMs. Further the SBI bank took the measures to overcome connectivity
problems to roll out core banking. The kind of infrastructure that is required for
connectivity is not uniform throughout the country. They still have branches in
remote locations of this country where infrastructure is very poor. They are
forced to adopt the wireless route as no other mode of connectivity is
available. Presently they are using landlines, leased lines. There are also the
difficulties associated with badly regulated power supply.
A lot of their overseas branches are controlled from their data center.
They put the sensitivity of the transactions in their foreign offices at a slightly
higher level, During the Mumbai deluge on 26th July, 2005, every SBI branch
abroad functioned without any hitch. All ATMs, barring those which were
flooded, were working smoothly. In some cases water had entered some ATM
machines rendering them non-functional. On that day around 600-700 ATMs
country-wide were down, the rest were fully functional. Contrary to perception,
there was no large-scale breakdown of their ATM network; only in some
pockets ATMs were affected. But they kept providing the basic services from
their DR site in Chennai. they have now got ISO certification-which is
considered the highest certification for data center activities-for both their data
center and their DR center. This proves that SBIs system is robust enough to
handle any exigencies.
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Security:-Further there is the information about security measures taken by
SBI for their network system. SBI was the first bank in this country to come
out with a documented information security policy. They have a full-fledged
department with a chief information security officer (CISO) designated to look
at all security matters. Not only networking, all aspects of security in
information technology-even outsourcing-are covered in this security policy.
they ensure that we don't deviate from it. As far as networking is concerned,
they have gone to the extent of even defining what kind of
compression/encryption should be done. They have got an antivirus, firewall
and IDS in place. Their network is impregnable. However, they are still looking
at various solutions to further improve security.
Challenges:-
• SBI is planning to set up 6,000 rural kiosks all over the country.
This is one of the challenge before SBI to install and manage
these kiosks:-
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not only satisfied but delighted with their services. All parameters will be in
line with international standards.
• Questionnaire
Q.1; Can you briefly talk about the evolution of the IT infrastructure at SBI?
Q.2; What were the challenges you faced during the transition from the manual
system to the computerized one?
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Q.3; What is the current status of core banking?
Q.4; How many ATMs do you have and what is their spread across the country?
Q.5; How do you manage to overcome connectivity problems to roll out core
banking?
Q.7; What are the security measures that you have taken and how secure is your
SBI network?
Q.8; How do you perceive SBI's role in the new millennium? What are your
major challenges?
Q.9; As the health of the banking sector is vital to the economy, are mergers a
solution to strengthen weak banks?
Yes: OR No:
Q.10; Now that the Reserve Bank of India has cut the bank rate, CRR and repo
rates by 1% after the budget, do you see demand for credit rising?
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Yes: OR No:
References:-
• http://en.wikipedia.org/wiki/Corporate_social_responsiblity
• http://en.wikipedia.org/wiki/Reserve_Bank_of_India
• http://www.theasianbanker.com/ind/award.nsf/leadershipAwa
rds_Winners2008?OpenForm
• http://www.moneycontrol.com/india/news/pressnews/disha-
financial-counselling-rbi-launches-comic-book/307414/1
• http://timesofindia.indiatimes.com/Business/India_Business/
Disha_and_RBI_launch_comic_book_Raju_and_the_Money
_Tree/articleshow/2447522.cms
• http://www.iba.com
• http://www.iib.com
• http://www.sify.com
• http://www.srribd.com
• http://www.financialexpress.com
• http://www.bimaljalan.com/speech140102.html
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