Beruflich Dokumente
Kultur Dokumente
Assignment
Topic:
1. Role of RBI in developing Financial System
2. Banking in 2020
Vinay Sharma
Division / Roll No.: D / 432
Contact number: 7208604876
1.Role of RBI in developing Financial System
The RBI has the twin objectives of maintaining price stability and
promoting growth.
The objectives are the following:
- Provision of adequate liquidity to meet credit growth and support
investment demand in the economy while continuing a vigil on
movements in the price level.
- In line with the above to continue the present stance on interest
rates including preference for soft interest rates.
- To impart greater flexibility to the interest rate structure in the
medium-term In developing economies, however, the growth
objective assumes greater importance.
Recently it is seen that during recessionary or deflationary conditions
achievement of 12 higher growths becomes the dominant objective of
central banks, both in developing and developed economies.
Let us now look at the evolution of RBI and its changing role and
strategy over time.
RBI was set up to regulate the issue of currency and keep reserves with
a view to securing monetary stability in India and generally to operate
the currency and credit system of the country to its advantage (RBI Act,
1934).
Within these overall objectives, RBI performs a wide range of
promotional functions, which are designed to support the countrys
efforts to accelerate the pace of economic development with social
justice. In keeping with the overall logic of reforms that market based
allocation rather than directed allocation of resources led to greater
efficiency, the functions of the RBI have undergone a strategic shift
under the current reforms. The strategy shifted from controlling
institutions and markets to facilitation of efficient functioning of
markets and strengthening of the supporting institutional infrastructure.
The pre-emptions in the form of CRR and SLR have been progressively
reduced. The scope of priority sector has been expanded. The interest
rate has been deregulated both on deposits and advances.
Allowing DFIs and banks to lend in the short as well as the long end of
the market has reduced segmentation of credit market.
From conservation of foreign exchange through control of transactions,
the focus has shifted to facilitation of foreign exchange transactions.
Intervention in the foreign exchange market has shifted from fixing of
exchange rate to merely curbing speculative volatility.
Stability issues came to the fore especially after the crises in South East
Asian countries in late 1990s.
The RBI progressively strengthened prudential regulation relating to
capital adequacy, income recognition, asset classification, provisioning,
disclosures and transparency. Sequencing of reforms among various
segments of the financial sector (banks, DFIs, co-operative banks,
NBFCs, money market, debt market and Forex market) was determined
by the importance of each segment, extent of regulatory powers
enjoyed by the RBI and the evolving situation. Furthermore, institutional
strengthening was undertaken to ensure the progressive development
and integration of the securities, money and Forex markets. The RBI
has made significant improvements in the quality of performance of
regulatory and supervisory functions. Our standards 13 are comparable
to the best in the world. Attention is being paid to several
contemporary issues such as, relative roles of onsite and off-site
supervision, functional versus institutional regulation, relative stress on
internal management, market discipline and regulatory prescriptions,
consolidated approach to supervision, etc. Several legislative initiatives
have also been taken up with Government, covering procedural law,
debt recovery systems, Credit Information Bureau, Deposit Insurance,
etc. Progress in these is critical for effectiveness of RBI in the regulatory
sphere. A recent important legislative development, which will improve
the momentum of recovery of dues, is the enactment of Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest (SRFAESI) Act. Under this Act RBI has been entrusted with the
role of stipulating suitable norms for registration of securitisation or
reconstruction companies, prescribing prudential norms, recommending
proper and transparent accounting and disclosure standards and
framing appropriate guidelines for the conduct of asset reconstruction
and securitisation.
2.Banking in 2020
By 2020, PwC says social media will be the primary medium with
which financial institutions connect, engage, inform and
understand consumers everything from the mass collective
social mindset, to the minutiae of each and every individual.
Information and opinions both good and bad will be
amplified. Mastery of social media will be a core competency,
according to PwC.
Historically, banks with the best and/or biggest branch footprint have
dominated, gaining a disproportionate share in their markets. By 2020,
much of todays infrastructure will not be a competitive advantage.
Leading institutions will offer an anytime/anywhere service, fully
utilizing all banking channels in an integrated fashion. The shakeup in
branch-based banking and the need to optimize distribution networksis
clearly top of mind for banking executives. Respondents globally view
the largest banks as benefitting most from these changes, and smaller
regional and community banks being the most threatened.
PwC says you should start with the customer and work backwards.
Simplifying the experience requires that products, channels,
organization and operations all must change. The most successful
banks will learn from other industries. Many consumer products
companies (Adidas, Apple) do not ownthe entire value chain. They
focus on what makes them distinctive product design, marketing,
distribution and contract out much of the rest to third-party
specialists. Granted, all this sounds like a major undertaking, but PwC
says the rewards for those who get it right will be huge.
The banking industry and the consumers they serve now generate
exponentially more information than ever before. Few banks are
positioned to integrate, analyze and act on the insights from the
massive data streams available today; imagine how the volume of data
will have ballooned even further by 2020.
In the future, PwC say leading players will exploit both structured and
unstructured information from traditional sources (such as credit
scores and customer surveys) and from non-traditional sources (such as
social media, and cross-channel bank customer interaction data). They
will collect and purchase other behavioral data (such as mobile location
and purchase data) particularly as customers grow accustomed to
surrendering privacy in a voluntary value exchange.
There are two areas in which the Indian banking industry will be
severely challenged to find a solution over the next decade. First
pertains to the rising expectation from banks to find an economically
viable solution for financial exclusion. The second pertains to human
resources challenge in the public sector. While the first challenge
demands unusual innovation and experimentation, the second
threatens to cripple the ability of the largest segment of the banking
industry from being able innovate and stay competitive. It is unclear
that the solutions to these two challenges will be identified unless the
banks were to accord highest priorities to these and work in concert.
1. Financial inclusion:
The issue of financial inclusion is at the center stage of the agenda of
the government. While the expectation from banks is high, the
government is also starting to look at non-banking industries to come
forward with a solution. Needless to say, if the answer does not come
from banking industry, non-banks will be welcome to nibble at its
revenue pool. It is a strategic priority given that the customer segment
in question will be the largest in number over the next decade and
banks stand to lose this relationship.
The public sector banks enter the next decade with the same
expectations as their private sector peers but with a severe
disadvantage in human resources. The HR challenge of public sector
banks has reached a tipping point. Due to a legacy of several decades,
the public sector banks will witness unprecedented loss of skills and
competencies in form of retiring senior and middle management
executives over the next few years. That coupled with the need for
large scale reskilling, attracting and retaining fresh talent, controlling
the growing employee costs, and introduction of performance discipline
are significant challenges.