Challenges and Opportunities in Retail Banking

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Banking and Finance in India: Developments, Issues and Prospects*

Ladies and Gentlemen:

I am delighted to be here amidst all of you at the 62nd International Banking Summer School (IBSS) being organised by the Indian Institute of Banking and Finance (IIBF) jointly with the Indian Banks' Association (IBA). I am thankful to the organizers and sponsors for providing me an opportunity to share my views and interact with you at a forum which I personally rate very high. Central bankers talk among themselves in various fora, it is high time that the bankers talk with each other. The School, open to senior bankers and financial professionals, as we are aware is a 10 days' brisk academic exercise that provides a platform for the practitioners of banking and finance to learn and share the latest developments in the banking and finance field and best practices and products available in today's fiercely competitive global banking arena. In the present situation of global turmoil that we have been going through in the last two years, this forum will provide opportunities to the bankers and finance professionals for understanding each other better. The exchange of views and the ideas which are going to be generated here during the next ten days will certainly throw useful insights and better understanding on how to overcome such problems in future. I am sure, in time to come, many of you are going to occupy high positions in banks including becoming Chief Executive Officers (CEOs).

                                                             The Inaugural Address delivered by Dr. K.C.Chakrabarty, Deputy Governor, Reserve Bank of India at the 62nd International Banking Summer School (IBSS) jointly organized by the Indian Institute of Banking & Finance and Indian Banks’ Association on August 31st, 2009 at New Delhi. The Assistance provided by Dr. Deba Prasad Rath and Mr. Sujit K Arvind in preparation of the address is gratefully acknowledged.   *



Considering the theme of IBSS this year and more focus on managing

banks in the era of turbulence, I think it would be appropriate if I share my views on a topic of contextual relevance, that is, ‘Banking and Finance in India: Developments, Issues and Prospects’ in the backdrop of the global financial crisis.


A recent BIS report has stated that it is useful to think of the financial

system as the economy’s plumbing. And like the plumbing in a house, the modern economic system depends on a reliable flow of financing through intermediaries. Modern life requires the smooth operation of banks, insurance companies, securities firms, mutual funds, finance companies, pension funds and governments. These institutions channel resources from those who save to those who invest, and they are supposed to transfer risk from those who can’t afford it to those who are willing and able to bear it (BIS, 2009). In India too, we have a well-diversified financial system which is still dominated by bank intermediation, though the size of the capital market has expanded significantly with financial liberalization in the early 1990s. Important components of the financial sector in India broadly fall into categories namely; commercial banks, urban co-operative banks (UCBs), rural financial institutions, non-banking financial companies (NBFCs), housing finance companies (HFCs), financial institutions (FIs), mutual funds and the insurance sector. Commercial banks together with co-operative banks account for nearly 70 per cent of the total assets of Indian financial institutions.

Global Banking Trends and the Crisis


Before I dwell on the developments in the Indian banking and financial

arena let me first touch upon briefly the global banking trends in view of the present crisis. It is not my intention to repeat a discussion on the causes of the global financial crisis and repeat what has happened since September 2008 by way of the efforts on the part of the Central...
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