Banking Challengespos

8/6/2019 Banking Challengespos

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The changing

paradigm ofBanking

New Challenges


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The changing paradigm of

Banking

Change is the only constant factorin this dynamic world and bankingis not an exception.

The changes staring in the face of

bankers relates to the fundamentalway of banking

Productivity and efficiency ofoperations,

Reduced operating margins Better asset / liability management

Risk management

Any time and any where banking.

Increased Demand for Profit


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The challenges

To protect the falling margins due to the impact ofcompetition.

Another significant impact of banks today is thetechnology issue.

There is an imperative need for not mere technology upgradation

The major challenge faced by banks today is Its integration with the general way of functioning of banks to give

them an edge

in respect of services provided to optimizing the use of funds building up MIS for decision making and

better management of assets and liabilities and risk assumed

which in turns have a direct impact on the balance sheet of banks as awhole.


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The demand?

All these changes call for

a new & more dynamic, aggressive and

challenging work culture

to meet the demands of customer relationships,

product differentiation,

brand values,

reputation, corporate governance and regulatory prescriptions.


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Challenges facing Indian banking

The main challenges facing by Indian banking are

the role of financial instrumentation in differentphases of the business cycle,

the emerging compulsions of the new prudentialnorms and

benchmarking the Indian financial system againstinternational standards and best practices.

The need for introduction of new technology inthe banking and the importance of skill buildingand intellectual capital formation in the bankingindustry are also equal important.


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Financial intermediation

Till recently the role of banks in the economy wasperceived to be 'catalysts' of mobilizing resource

requirement for growth.

This view has undergone a change and banks are

no longer viewed as passive mobilizer of funds.

Efficiency in the financial intermediation is the

ability of the financial institution to intermediate

between savers and investors, to set economic prices for capital and

allocate resources among competing demands is now

emphasized.


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Financial intermediation

In the wake of the recent emphasized in the

economy the intermediation role assumes even

greater relevance.

By virtue of their experience

and superior credit assessment of the investment

proposals

banks should play a significant role in identifying andnurturing growth impulse in the

commodity and service producing sector in the

economy.


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Market discipline

They also have to make a disclosure of

total investments made in equity shares,

units of mutual funds,

bonds and debentures and aggregate advancesagainst shares in their notes to balance sheet.

Efforts are on to

collect and share information on borrowers and

improve the credit appraisal of banks and financial

institutions.


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Adopting International Standards

The fallout of Asian crisis and the impetus given to the

strengthening of domestic financial systems has resulted in

a more by the regulators to set up universally acceptable

standards and codes for benchmarking financial systems.

RBI has also set-up an advisory group to draw a road map

for implementation of appropriate standards and codes in

light of existing levels of compliance, cross country

experience and the existing legal and institutionalinfrastructure.


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Technology Banking

The major challenge for banks is To fall in line with the emerging scenario and adopting

the require technology to provide state-of-the-artservices to the customers.

Introduction of on-line, inter-connected automaticteller machines (ATM),

Telephone banking,

On-line bill payment and

Internet banking are some of the high tech facilities.

Technology should ultimate results in better customerservice, low cost and quick delivery.


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Rural banking

Having committed 75% of their branches

network to serving rural and semi-urban

population, public sector banks have to

adopt a financial emerging approach to rural

banking.


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Human resource development in banks

The core function of HRD in the banking industry is To facilitate performance improvement,

measured not only in terms of certain financial indicators ofoperational efficiency

but also in terms of quality of financial services provided.

The skill level, attitude and knowledge of the personnelplay an important role in determining the competitivenessof a bank.

Banks have to understand that the capital and technology-considered to be the most important pillars of banking -are

replicable, But not human capital, which needs to be viewed as a

valuable resource for the achievement of competitiveadvantage.


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What is required?

The primary concern of the bank should be to bring in proper integration of human resource managementstrategies with the business strategies.

It should faster cohesive team work and

Create commitment to improve the efficiency of its humancapital.

More than operational skills today's banking call for these`soft skills' to attend the needs and requirement of thecustomers at the counter.

The need to adopt global best practices to financial sectorregulation and supervision and adopt them to the domesticenvironment, places a premium skills and expertise of the

bank human resources.


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How to overcome?

The challenges that confront institutions in the banking and financial

services industry today are formidable. To overcome these challenges Offering more to the customer base ::Banks should strive to constantly

offer more to the existing customer base. To achieve this, theyemphasize on more targeted technology investments and high-qualityservice.

Leveraging Human Capital to Increase Profitability::Financial

institutions have to constantly adopt advanced analytical methods tomonitor and measure the performance of their personnel to improveresults.

Offshoring:: The significant cost advantages provided by India andChina are pushing institutions in the banking and financial industry tolook to these locations for moving operations. Although the moveinvolves complexities, the benefits are bound to be substantial..

Keeping pace with technology:: To remain competitive, financial institutionswill have to renew their commitment to investing in new technologystrategically -- to reduce costs, improve efficiencies, and boost revenue-generating initiatives.


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How to overcome?

Basel II Capital Accord Compliance:: Banks have to ensure compliance withBasel II Capital Accord by 2009. Leading banks are already underway inpreparing to comply with Basel II Capital Accord. This will act as a catalyst forbanks to upgrade their credit and operational risk management process.

Regulatory Issue Changes:: Banks are constantly confronted with regulatorychanges including Basel II, International Financial Reporting Standards, theKYC, and anti-money laundering legislation. A focused and comprehensive

approach is required to ensure compliance and achieve cost control at the sametime.

Corporate Governance::The need to move towards stronger corporategovernance is accelerating across the globe, with the passing of the Sarbanes-Oxley Act in the United States. Banks need to seize this opportunity tostrengthen their internal controls and enhance their disclosures to investors.

Globalization and Consolidation:: Consolidation has led to increasedcomplexity of managing operations as a wide range of financial services are nowoffered under the same roof.

Implementing Accounting Standards::Banks in Europe and many other partsof the world will need to adopt International Financial Reporting Standards inthe coming year. The impacts will be widespread, affecting information systems,credit assessment, and business operations. Banks must induct professionals inthe system


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Conclusions The Indian banking industry is facing newer challenges in terms of

narrowing spreads, new banking products and players

and mergers and acquisitions.

Adoption of risk management tools and new information technology isnow no more a choice but a business compulsion.

Technology product innovation,

Sophisticated risk management systems,

Generation of new income streams,

Building business volumes and cost efficiency will be the key to successof the banks in the new era.

In the present environment where change is inevitable, it is not enough if

bank change with the change,

but they have to change before the change.

They should perceive what customer want and accordingly structure theirproduct and services.

Banking Challengespos

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