Organised banking In India

General Bank of India in 1786

Indian BankingPast,Present & Future

The Indian Banking system is unique and has no parellels in the Banking history of any country in the world. Various Phases of Indian Banking are:1. Phase I:: 1948 to 1968 Character 2. Phase II:: 1969 to 1991 Nationalised 3. Phase III:: 1992 to 2002 Prudential 4. Phase IV:: Beyond 2002 Universal

Todays Banking

Banking

3 T s Of Present Day Banking

Technology Transparency Transformation

Where did we start?

3---6---3 Banking

Accept Deposits @ 3%

Lend @ 6%

Go for Golf @ 3 pm

The Banking Business has gone through fundamental Change. There is so much pressure on Cost.

Business of Banking

Accept Deposits at low rates

Security oriented lending--Lend against security like gold, land & building

4 or 5 Indian banks could potentially enter the global top 20 by market capitalisation by 2020.

FICCI-BCG Report (August 2011)

Indias Gross Domestic Product (GDP) growth will make the Indian banking industry the third largest in asset size in the world by 2025

Banking is now 365X24

Plastic money has replaced paper money.

Why technology?
Diligence Accuracy Speed Storage Automation Versatility

CBS is no longer a choice, but a compulsion driven by Market reality.

You cannot do Todays Job

with
Yesterdays

Methods
and want to be

in Business
Tomorrow

It is not technology itself that supplies returns to a Business but how technology is employed to meet business requirements
Standing examples:: ICICI Bank, HDFC Bank, Axis Bank etc

Competition
Competition is fiercer than ever There is increasing pressure to reduce prices Blaming each other for non performance There is an urgent need to launch new products at an unprecedented rate Large %age of work force lack adequate skills to cope up with present day requirements People are overloaded with routine work People do not come out with creative ideas for expanding business

What we see today?

Increased competition New IT avenues Erosion of Product boundaries Less Govt.restrictions Erosion of & Geographic boundaries Pressure on bottom line Increased use of HR practices Customer centric policies/action High expectations of Customers who are well informed & Possess Technical Knowledge. BASEL Accord III

Technology Benefits
Large Scale Use of Computers in Banking

Operations implies improvement in

Efficiency,

Productivity,
Customer Satisfaction, Profitability

Are we seeing these benefits fully?

Only partially Increasing NPAs have drained the profits

Interest rate deregulation

Only SB and NRI deposits within the RBI regulations now. In the advances front, ROI on Exports, DRI, Small loans upto Rs.2 lakhs regulated by RBI.

All other rates at the discretion of the individual Banks

Lowering of reserve requirements

The CRR 4%
Introduced in 1935 :: 7%
Highest in 1989 to 1992 ::15%

The SLR 23%

Introduced in 1949-20% Highest in 1990 to 1992-38.50%

 Govt equity in Banks has been reduced. Banks are allowed to access the capital market for additional capital

 Foreign Banks permitted to expand their operations, including thru subsidiaries.

 New private sector banks will be licenced. New norms announced

Insurance Infrastructure financing Gold Banking Investment banking Asset management Factoring Forfaiting Adoption of Global standards w.r.t Capital adequacy, Asset classification, Income recognition. Risk based supervision Best international practices

BANKS

Narasimhan Committee 1998

Capital Adequacy, ASSET QUALITY, NPAs, Directed credit, Prudential norms, Disclosure requirements, Asset liability Mgmt., . Earnings and Profitability, Systems & Methods Review of Banking sector Laws DONE Restructuring including mergers & amalgamation Reduction in Govt.& RBI share holding to 33% in PSBs
To BE DONE

Challenges for Banks Internally

Strategic planning Staffing the regulatory environment Marketing

Let us hear about a few banking experiences

Banking trends since Nationalisation

Social banking Lead bank scheme Priority sector lending Service area approach Micro credit Self Help Groups Banking sector reforms Asset Liability Management Risk Management Asset Classification Capital Adequacy norms Anti Money Laundering Out sourcing of Banking services Core banking

 The implementation of the International Financial Reporting Standards (IFRS) in india: Select Companies from 1.04.2011 Insurance Cos from 1.04 2012 Banks & NBFCs from 1.04.2013 Convergence effected for IND Ass for 35 sections

Banks Woo Indians Living Abroad

Newer trends
Upgraded technology Governance & Policies Rating methodologies Innovative products Emerging services Simplified procedures HR policies Outsourcing of services

Governance & policies

Mergers & Acquisitions HR Challenges Microfinance Risk management New Basle accord-Basle I to III E Banking Merchant Banking Retail banking CRM in Banking Financial Inclusion Bancassurance

Transferring money
A decade ago, transferring money from your account to a family member's would have meant a visit to the nearest bank branch, a long queue and a few days-long wait. Today, you can use your mobile phone to make the same transaction instantly.

Pilgrimages to bank branches

Innovations such as automatic bill payment, cash transfers through mobile phones and online banking have ensured that customers no longer have to make pilgrimages to bank branches. Passbook entries have been replaced by hassle-free e-statements; ATMs facilitate easy withdrawals and payments.

Are these transactions safe and secure?

YES

The HT-MaRS Bank and Credit Card Satisfaction Survey 2012

ranked banks according to customers' satisfaction across various categories. I HDFC Bank II ICICI Bank IIIAxis Bank PSBs were down in the list.

Can you highlight the reason for this?

Technology and constant upgradation helped the Private sector Banks.

Customer satisfaction
Top 10 slots went to PSBs Bank of Baroda --best government-run bank.

Changing global and local financial regulations, such as Basel III, will further exert pressure on Indian banks.

Core Banking solutions(CBS)

Banks have come a long way from the old days of manually recording transactions in registers and tallying them up at the end of the day.

--More and more people are shifting to alternative delivery channels, which account for nearly 30-40% of customers at present. --Over the next few years this is likely to go up to 70-80 %,

Chanda Kochhar, MD and CEO ICICI Bank Ltd says::

only 15% of transactions on an average take place through the branches. The rest are happening outside.

ATM --oldest of the alternative banking channels

Enjoys the highest level of acceptance among customers . The number of ATMs in India has doubled in the past three years. Currently, there are more than 100,000 ATMs. Around 70% of the ATMs are in urban locations. The number of ATMs is to double by 2016, with more than 50% being set up in small towns.

RBI data 2011-12

---the volume of online fund transfers through NEFT (National Electronic Funds Transfer, used for low-value transactions) grew by 71% ---RTGS (Real Time Gross Settlement, used for high-value transaction) grew by 11.7 %,

Use of Cheques
Charges for issue of cheque books RBI discouraging use of cheques by advising banks to levy charges

Electronic cheque

CTS 2010 Cheque

Cheques
Physical cheques Truncated cheques Electronic cheques

Technology & Cost

Technology is not only making banking convenient for customers, it has also allowed banks to expand their businesses faster and bring down costs. The cost of servicing a customer : -- at a branch Rs.200 --ATMs Rs.20 --online and mobile phones, further less

Moving to alternative channels is a win-win for both sides, viz; customers and Banks

Business correspondent model

A third party serves as the interface between a bank and its customers. To expand the Banks reach and bring more people under formal banking using technologies such as handheld devices and micro-ATMs.

 NGOs, Farmers clubs, Cooperatives, Agri clinics, Krishi vigyan kendras etc are eligible. Services like identification of borrowers, promotion of SHGs, loan process, follow up etc are rendered. Facilitates Financial inclusion

Business facilitator Model

The road ahead

We have come a long way since the 1991 reforms. We rejoice in our achievements and success We must have the humility to acknowledge that much more needs to be achieved in our pursuit of excellence.

Challenges that lie ahead A. Challenges in coping up with the emerging regulatory and supervisory framework B. Challenges in meeting the specific needs of the economy C. Challenges in fixing the fault lines in the system.

Importance of technology for Bank operations, and survival.

Personnel Department to HRD

HRD in Banks
Translates corporate objectives into achievements and transforms the organisation. The PSBs must hasten the HR reengineering process and reposition their resources.

HRD in the banking industry is to facilitate performance improvement

HR Policies
Earlier Appointment thru referrals Enquiry to evaluate suitability Training after recruitment Seniority based promotion
Present trend Specialist qualifications Campus recruitment Online tests Training before recruitment Performance linked promotions Innovative compensation packages

HR and Skill Development

A sound and futuristic HR policy is essential New technology is transforming the skill structure in banking. How should an HR Manager in a bank respond to this fast-changing scenario?

What exactly is the impact of technology on the human resources employed in banking?
These new and enhanced skills would require new knowledge and behavioral adjustments in respect of existing human resources. In this context, the training system will emerge as an important tool of intervention. The training system in the banking industry has a strong structural base. However, in the past, the training activities have been more ritualistic due to absence of a strategic link between training and human resources development. Today, it is important that the training function is made an effective organizational intervention by establishing a clear policy of training and development within the framework of total human resource development. The training establishments need to be actively involved in the total training process starting from the identification of training needs, evaluation of training effectiveness, and the benefits of training to the end-users, viz., the internal and external customers.

Emerging Models
Myopic (short term, involving replacements for retirement) Telescopic (long term, involving development and replacement)

Could be a Hybrid approach

Emerging Hybrid approach

Impetus to recognize the talent within the organization Design bold initiatives for acquiring fresh resources. The attitude silos among the existing staff about the understanding and conviction of the new business models and their positioning, will be the drivers of success.

Junior management cadre

In the junior management cadre, quality is as important as quantity. The attractive opportunities in Private sector Banks leave PSB banks with only mediocre talent. But attrition is a game in any industry and banks have to handle this in a pragmatic way. In this context, myopic human resource planning will help.

 Looking inward and recognizing the talent within the bank by framing an HR policy to spot the staff from a specific agegroup and promoting them, subject to suitability and eligibility and developing them for the future. This will result in motivation and building commitment and loyalty. Creating a new sub-junior management cadre for the front office operations, and marketing and selecting new resources by loading performance-driven career pushes in the cadre to make it attractive and, thus, reduce attrition. The compensation should be innovatively structured matching the performance levels with clearly defined role functions and responsibilities. This model has been successfully implemented by some new generation private sector banks. The level of responsibility and accountability should influence the compensation to act as an exit-barrier.

PSB banks look at the following options: -

A special pool of people from the organisation can be identified and created based on their competencies for new and emerging business opportunities. A residual service of, say, eight to ten years, will be the enabler for structuring a position-oriented career path and preparing them for the immediate senior management positions which will open up in the very near future. From the immediate next batch, with a residual service of, say, 10-15 years, after a competency mapping, eligible human resources have to be identified and an action plan should be drawn to develop them for taking the organisation forward in the next decade. This segment is important for keeping the banks afloat in the HR front, and has to be taken care of with regard to developing business initiatives skills. This segment will be at the helm of affairs when banks will not only reengineer the business models but also get engaged in a host of new business initiatives. Retraining and re-skilling will be the top-most priority for this segment.

PSBs

Needs a HR Vision and Mission Document in tandem with the Business Vision and Mission Document.

Recruitment process in Banks

Old procedure:: Thru referrals Advt in papers

Now:: Camus visits Selection process Specialists recruited Online tests IBPS mode

Changing business lines

From plain vanilla banking solutions to holistic financial and beyond financial solutions provider This necessitates a clear understanding of the changing business paradigm. The middle-management resources with strong banking background will be the right fit for meeting these challenges.

Basel Committee Norms

Basel III
According to Basel Committee on Banking Supervision "Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector".

Basel III
Basel III is only a continuation of effort initiated by the Basel Committee on Banking Supervision to enhance the banking regulatory framework under Basel I and Basel II. Basel III seeks to improve the banking sector's ability to deal with financial and economic stress, improve risk management and strengthen the banks' transparency.

Basel 3 aims to:

Improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source Improve risk management and governance Strengthen banks' transparency and disclosures.

Mobile banking
has hit a tipping point. New technologies, investment, and infrastructure are enabling Banks to unlock a new domain of financial services. Wide range of services provided

mobile banking
mobile banking is leapfrogging traditional banking to bring services to millions of unbanked customers. mobile banking is becoming a way of life for many consumers

Banks have adopted several innovative means to enhance their base and make their service accessible .

ATM Card
ATMs are mini banks without employees. Customers can withdraw cash from the account and get statements on their bank balance using such machines . This is a personlised plastic card bearing a number for each customer . The card is to be inserted into the machine and enter the personal identification number. It gives accessibility for 24hrs a day and 365 days in a year.

Credit card
This is a popular means for providing retail credit. A credit card is an instrument issued by a bank in the name of the customer providing for credit upto a specific amount. Outstanding balances can be converted into emis repayable in different months.

Financial Inclusion
1. Delivery of banking services at an affordable cost to vast sections of disadvantaged and low income groups. 2. Some features:: Basic Savings account(No frill a/c), Easier credit facility(General purpose credit card Rs 25000), Simpler KYC norms, Use of IT (Smart cards with biometric identification, Mobile held electronic devices for Bkg transactions , EFT)

Achievements
The modern banking industry has brought greater business diversification. Some banks have entered into investments, underwriting of securities, portfolio management and the insurance businesses. Taken together, these changes have made banks an even more important entity in the global business community.

The unfortunate trends Increasing Frauds Increasing Cyber frauds Increasing NPAs

To reiterate The Critical areas of Change

1. Change in the concern & Approach towards Business (From walk in business to Go Out concept) 2. Change on account of financial sector reforms 3. Technology Change 4. Product change & Process change

Tomorrow belongs to people who prepare for it today.

Lastly, The Winning Formula

1. Improve basic efficiency-all the time 2. Think as simply & directly as possible about what you are doing & why 3. Behave to others as you would wish them to behave towards you. 4. Evaluate each business & business opportunity with all the objective facts & logic you can muster 5. Concentrate on what you do well 6. Ask questions ceaselessly about your performance, your markets, your objectives

The Winning Formula

..contd

7.Make money-unless you do, you cant do

anything else 8. Economize -doing most with the least. 9. Flatten the company, so that authority is spread over---not a pyramid 10. Admit to your failings & shortcomings, for improvement 11. Share the benefits of success widely among all those who helped to achieve it. 12. Tighten the organisation whenever necessary, because success tends to breed slackness.

Time and Tide wait for none. Let us keep moving.