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The future of banking

The future of banking
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First Published: Thu, Sep 22 2011. 01 24 AM IST

Updated: Thu, Sep 22 2011. 01 22 PM IST
Prospects and Perils | The future rests on three pillars
By Tamal Bandyopadhyay
In her dream, Sapna is chased by six bank managers—all of them dying to fund her one-year postgraduate programme in management at the Indian School of Business (ISB), Hyderabad.
She hadn’t yet qualified for the course and didn’t know whether she would make it. She had done reasonably well at the Graduate Management Admission Test (GMAT) and after choosing ISB, dropped in at the local branch of a public sector bank in the western Mumbai suburb where she lives. The branch manager gave her a patient hearing and promised to finance her expenses up to Rs 8 lakh if her mother was willing to provide adequate collateral. She would also have to give an undertaking promising to return the money after she gets her first job. (Click here to read full report)
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Human Resources | The path for reforms in PSBs
By Anil K. Khandelwal
With the onset of financial sector reforms, many public sector banks (PSBs) have been on a transformation journey in the past two decades. The most important reforms have been in the areas of deployment of modern technology, strengthening of retail orientation, implementation of prudential norms and Basel II recommendations on banking standards.
Overall, the banks have performed well, reducing non-performing assets (NPAs) and strengthening balance sheets. (Click here to read full report)
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Inflation | Decoding the dynamics
By Deepak Mohanty
In India, we have multiple price gauges—six consumer price indices (CPIs) and a Wholesale Price Index (WPI). While the Reserve Bank of India (RBI) examines all the price indices, both at aggregate and disaggregated levels, changes in WPI are taken as the headline inflation for policy articulation. Within WPI, non-food manufactured products inflation is considered the core inflation—an indicator of demand condition.
Going by any measure of inflation, India comes out as a moderate inflation country, though occasionally inflation crossed into the double-digit territory. The historical average long term inflation rate was around 7.5%. (Click here to read full report)
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The urban banking model cannot work in rural areas
By N. Vaghul
As one of India’s longest-serving bankers, former chairman of ICICI Bank Narayanan Vaghul has closely observed and been part of the evolution of the industry over the past few decades. He spoke in an interview about the future of Indian banking and what needs to be done to make financial inclusion work. Edited excerpts:
Retail banking in India started decades ago, but why are banks still making losses?
I don’t think banks are making losses in retail lending. Home loans and auto loans are very profitable, although I am not very sure if two-wheeler loans are holding up good. There are some problems with unsecured lending. What banks are now trying to do is to get out of the unsecured lending business, the losses are mounting up there. So it is understandable that banks are exercising a greater degree of selectivity while extending unsecured loans. (Click here to read full interview)
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Financial Inclusion | A road India needs to travel
By K.C. Chakrabarty
India has seen historic progress and growth in the past decade. While the growth story has been impressive, there are causes for concern on other dimensions. We have a long way to go in addressing concerns of absolute poverty. Low-income Indian households in the informal or subsistence economy often have to borrow from friends, family or usurious moneylenders. They have little awareness and practically no access to insurance products that could protect their financial resources in unexpected circumstances such as illness, property damage or death of the primary breadwinner.
Unrestrained access to public goods and services is an essential condition of an open and efficient society. It is argued that as banking services are in the nature of a public good, it is essential that the availability of banking services to the entire population without discrimination is the prime objective of public policy. Expectations of poor people from the financial system is security and safety of deposits, low transaction costs, convenient operating time, minimum paper work, frequent deposits, and quick and easy access to credit and other products, including remittances suitable to their income and consumption. (Click here to read full report)
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Monetary Policy | Key factors shaping trajectory
By Subir Gokarn
The core objectives of monetary policy in the future will remain what they have been in the past. The primary objective of monetary policy is a low and stable inflation. In achieving this, the economy has to be allowed to maintain growth at the highest possible rate consistent with a low and stable inflation.
However, the context in which these objectives are pursued obviously changes over time. In my view, there are three key factors that are playing an important role in the current Indian context. Each of them has a bearing on both the monetary stance and the strength of the monetary transmission process. (Click here to read full report)
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Derivatives | Cautious approach to innovation
One of the key reasons why the Indian financial system was not affected by the 2008 global meltdown was the banking regulator’s conservatism. The central bank ring-fenced the Indian banking system by imposing stringent criteria on various instruments, including trades in permitted derivative products, and deferring the introduction of others, one of which was blamed for sinking large global financial institutions. (Click here to read full report)
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Retail banking | Opportunity lies in technology
Anurag Thakur is a changed man. Gone are the days of late-night parties, dinners in fancy restaurants and holidays twice a year. Reason? He cannot borrow as freely as he could three years ago. In 2009, as Indian lenders faced the risk of defaults in products such as credit cards and personal loans, they squeezed credit lines to people like Thakur. His grace period was curtailed and credit limit shrunk as banks became wary of lending unsecured loans. (Click here to read full report )
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Microfinance | Weighing growth, vulnerabilities
Till recently, India’s Rs20,000 crore microfinance industry had a great run, growing at a scorching pace and being chased by private equity investors. SKS Microfinance Ltd, the largest of them, tapped the capital markets in a successful initial share sale in 2010, signalling the acceptance of the industry by investors. (Click here to read full report )
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Financial sector reforms | Meeting growing requirements
By Narendra Jadhav
Global economic prospects today are hardly encouraging. Thanks to the G-20 process that emphasized global cooperation and coordinated policy responses, a prolonged downturn that was feared in the wake of the 2008 global financial crisis was successfully averted. After contracting in 2009, the advanced economies did resume positive growth in 2010, but it remains anaemic. Moreover, given the fiscal unsustainability and concerns over sovereign debt, the shadow of the euro zone crisis is looming large, and indeed has been lengthening. This has inevitably been creating uncertainties for emerging market economies (EMEs) in respect of the size and volatility of capital flows as well as their prospects for exports. Furthermore, the rise in oil prices and prices of commodities, including food, have led to greater adversities for EMEs like India. On the other hand, EMEs have been growing quite robustly, with India being one of the top performers in bouncing back from the shock of the global financial crisis. Nevertheless, of late, EMEs are also beset with serious difficulties. In India, sluggishness of growth is clearly evident with lowest monthly growth in industrial production (in July) in 21 months and inflation running over 9% for the eighth successive month. (Click here to read full report )
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First Published: Thu, Sep 22 2011. 01 24 AM IST