India has
seen historic progress and growth in the past decade. Banking services are in
the nature of a public good and it is essential to make banking services available
to the entire population without discrimination. It is well understood there is
a huge demand among poor for banking services; it is considered more viable and
profitable. Expansion of bank branches, especially in rural areas, resulting in
multifold increase in branch network from around 8000 in 1969 to 89000 today,
spread across the length and breadth of the country. Despite all these efforts
it is estimated that about 40 percent of Indians lack access even to the
simplest kind of formal financial services.
Currently India has 27 public sector banks, 22
private sector banks, 31 foreign banks, 89 regional rural banks and 2123
cooperative banks of various kinds. Today India has about 89000 bank branches
of commercial banks and 55000 Automated Teller Machines and one half a million
Point of Sale Terminals of merchant establishments and 850 million mobile
phones. India is the 10th largest economy but one half of India’s population
does not have access to banking services primarily because branches are located
predominantly in the urban region. Banks are not convinced about prospects in
the rural areas though economists agree that development in the rural sector is
the key driver for the future. The collapse of Lehman Brothers did not impact
the Indian banks. The Indian banks stood strong, remained profitable, well
capitalized and had no worry of the asset quality. Though the Indian banks are
progressing there is still scope in development by redesigning the features of saving’s
bank account, permitting more foreign banks and private players in to this
sector. The so called new generation private banks have not been able to spread
banking across the country as their focus has all along been on urban India.
Internet banking/Mobile banking:
A recent
McKinsey report reveals that the usage of internet banking has risen by 28
percent while mobile banking has shot up by 83 percent across the Asia –Pacific
region. The convenience of anywhere banking is the biggest draw for customers.
About 50 banks have been permitted to offer mobile banking services till now of
these 38 have just started operating. The services available on the mobile are:
(a) bank account: funds transfer, bill payment, balance enquiry, cheque book
request, last 5 transaction stop cheque request; (b) Credit Card: balance
details, last payments details and payments due date; (c) Demand holding
enquiry transaction status; bill enquiry, ISIN enquiry; (d) Loan: provisional
income tax certificate; final income tax certificate reset letter; rescheduled
letter; loan agreement copy
The 10.4
lakh mobile banking transaction value is Rs. 84.6 crore.
Mobile
banking will be the second largest channel for banking after ATM in 2020.
Almost 22 percent of the banking transaction will be through the mobile. Online
banking will also grow while cash and cheque transaction will come down from 49
percent to around 15 percent.
The scope
of internet banking is increasing and the raises questions such as: the
additional facility to be included; the speed of processing a transaction:
errors in processing; difficulties encountered in the urban and rural set up;
the cost of transaction; the hidden costs; and the extend to which this system is
user friendly to the customers or is it cumbersome, and the security aspects.
Credit Card Fraud:
According
to Norton Cyber Crime Report 2011 Indians figure high on the list of credit
card fraud, 80 percent of adult Net users are targeted; 60 percent of crimes
were due to viruses and malware, 20 percent were online scams; 19 percent used
for social tactics such as phishing and 17 percent were through mobile phones.
The value of lost and stolen fraud is Rs 5 crore and counterfeit card fraud is
Rs. 8.2 crore. The loss may be made zero
by following steps such as : registering transaction alerts via SMS and email;
bank to be updated of change in mobile number; reduce credit limit if the card
is used sparingly; use virtual cards/ virtual key boards for online shopping; type
bank web address instead of using email links; scratch the 3 digit CVV after
memorizing; do not leave photo copies of credit card; when you loose your phone
deactivate your bank account and switch off the router when not in use. The
awareness of these steps among the credit card holders needs to research. The reasons
of becoming a victim of fraud; the rights and liabilities of a banker and
customer under such situations; when fraud is notified the actions taken and
the speed at which it is taken, security measures undertaken by the bank to
minimize fraud are also some of the topics that needs an empirical study
Financial Inclusion:
In India,
the term financial inclusion was first featured in 2005. According to Boston
consultancy report the banking scenario is changing 2003 is 30 percent
financial inclusion; 2010 is 45 percent is the financial inclusion and in 2020
will be 65 percent as the financial inclusion. It is a process of ensuring
access to appropriate financial products and services by the vulnerable groups,
such as weaker sections and lower income groups are at an affordable cost in a
fair and transparent manner. It is one of the most critical aspects in the
control of inclusive growth and development.
The G–20
countries Innovation Financial Inclusion Experts have highlighted principles to
serve as a guide for policy and regulatory approaches with the objective of
fostering safe and sound adoption of innovation, adequate, low cost financial delivery
models, helping provide conditions for fair competitive and a framework of
incentives for various banking, insurance and non banking entities involvement
and delivery of the full range of affordable and quality financial services. The
major barriers to serve the poor apart from socio economic factors such as
regular income, poverty, illiteracy, etc are the lack of reach, higher cost of
transaction and time taken in providing those services. Products designed by
the banks are to be tailored for scalability, convenience, reliability,
flexibility and continuity. The RBI have been undertaking financial inclusion
initiatives such as no frill accounts; relaxation of Know your customer norms;
engaging business correspondents; offering General purpose credit card facility
up to Rs 25000/- at rural or semi –
urban branches and freedom to open branches in tier II and tier III regions. To
become a global player these inclusive measures are sources’ of empowerment.
The efficiency and effectiveness of these initiatives by the RBI needs to be
researched.
Micro Finance:
In early
July 2011 Union Government introduced draft legislation to govern microfinance
based on Y H Malegam recommendation. India has about 900 micro finance
institution majorities of them functioning as Non Governmental Organization
trust or as cooperatives societies. Out of these 350 MFI’s are listed with
industry associations. Indian PSB’s have lent 24,178 crore to small borrowers though
Micro finance institutions and self help groups as on July 2011. Small
Industries Development Bank of India (SIDBI) SBI and ICICI are he major players
in this sector. The MFI are intending to merge so s to consolidate and justify
economies of scale. The profitable areas of diversification of revenue, the
reasons leading to mergers or consolidation, the role of PSB and private Banks,
the optimum risk – return model the regulatory gaps are all to be studied in
dept to understand the growth and vulnerability of micro finance.
Non Operative Holding Companies: (NOHCs)
The
Reserve Bank of India has also recently issued draft guidelines for giving new
banking licenses to private players New banks can be set up only through wholly
– owned non-operative holding companies or NOHCs. The RBI will seek views on
the draft until October 31, 2011. Industrial houses such as Aditya Birla Group,
Tata Capital, Reliance ADAG, Bajaj Group, SKS Microfinance, and Shriram Finance
are eyeing these banking licenses to increase competition and fostering
bettering the quality. Groups which have successfully run business for at least
10 years and with not more than 10 percent of their revenues or assets in the
real estate and broking business in the last three years are eligible for licenses.
To ensure high corporate governance at least 50 percent of their boards is a
made up of independent directors. These banks to follow the same priority
sector lending targets existing for domestic banks to be followed; list
themselves on stock exchanges within two ears of obtaining their licenses and
more. This is expected to serve the purpose of financial inclusion. RBI plans
to” incentivize” foreign banks and treat them almost on a part with local banks
if they agree to go for local banks incorporation and become subsidiaries of
foreign parents. The market share of foreign banks in India has remained
unchanged for decades at around 7.5 percent. Currently there are 36 foreign
banks in India and collective they have about 315 branches. The impact of
NOHC’S needs considerable deliberations amongst different groups.
HR Reforms
The banks have performed well reducing the
non-performing assets (NPA) and strengthening balance sheet. But the public sector banks are seriously
handicapped in human capital. Barring
some of adhoc measures in promotion methodologies and training systems the core
HR lacked long term orientation. It is
inadequate in the area of talent management, performance management and
leadership development. The old PSBs compete with new generation banks which
has product innovations are customers centric and practices top class HR
practices. A McKinsey Company and Booz Company
study report in 2010 states the PSBs will lose half their employees in the next
decade as retirement, i.e. 80% of General Managers, 50% of middle managers and 30%
of other employees will retire over the next 5-6 years. It also emphasized that
there is a leadership gap of 12000 to 15000 people in branches, regions and in
other functionary areas. The Kandelwal
Committee Report of 2010 emphasized on the following observations with regard to
HR in the Indian Banking sector:
ü HR was neglected in all banking reforms
ü HR has no place in the strategic matrix of public
sector banks
ü The HR is not professional, filled with unionism,
absence of reward and serious gaps in succession planning.
ü Automation of HR is limited and non-core
activities are not outsourced.
ü Lack of employee engagement
ü Lack of appraisal system and performance
management systems even at the clerical level
ü Adhoc creation of top and senior level management
and it is not commensurate with business dynamics
ü Inadequate manpower planning
ü Under utilization of talent
ü Lack of re-dressal to diversity situations
The competitive banking setting requires emphasis
on developing new capabilities, visionary leadership and enhanced quality of
manpower, improved workplace culture. How will the PSB’a meet this constraint
is a big concern in this dynamic banking environment?
Finally the Indian banking sector has a long way
to go. About 5,00,000 villages are yet to be provided with banking services. Adequate
infrastructure, supplementing the brick and mortar structure is available at a
reasonable radius of 2 to 3 km, digital and physical connectivity,
uninterrupted power supply are matters to be improved. Mind set cultural and
attitudinal changes at grass roots and cutting edge technology at levels of
branches of banks are needed to impart organizational resilience and flexibility. Bank should institute systems of reward and
recognition for personal initiating, ideating, innovating and successfully
executing new products and services in the rural areas. Inclusive growth will act as a source of
empowerment and allow people to participate more effectively in the economic and
social process. Banking sector in India is expanding in exponential rate with
dynamics of threat and opportunities in the internal and global market leaving
ample scope for future research.
Reference:
1.
Tamal
Bandyopadhyay, “The future rests on 3 Pillars”, The Mint Report, 22 September,
2011, p.1
2.
Chakrabarty,
K C, (2011), “A Road India needs to travel”, The Mint Report, 22nd
September, p.6
3.
Anil K.
Kandelwal, (2011), “The path for reforms in PSBs”, The Mint Report, 22nd
September, p.9
4.
Economic
Times Wealth, September 26-2 October, 2011
5.
Business
Today, October 2, 2011, p.17
© Padma Shankar, Editorial, “Maintaining
Technological Dynamics in Indian Banking System”, Advances in Management, Volume 4, Number 12, December,2011,
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