Environment Analysis

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CHAPTER II ENVIRONMENT ANALYSIS OF BANKING INDUSTRY

Meaning of Environment Analysis

Environment analysis means scanning information about an organization‟s internal and external environment to plan the organization‟s future course of action. Environmental understanding helps to avoid shocks, recognize threats and opportunities, and improve long-term and short-term planning. The information compiled from environmental analysis assists top management to effectively plan for future actions. Organizations analyze the environment in order to understand the external forces so that it could help to develop effective responses to secure or improve their positions in the future. There existed a positive relation between environmental analysis and profits of an organization.

Top management looked at information in two ways: viewing and searching information. This information needed to be evaluated and disseminated to strategists within the organization and to help top management to make decisions that could create strategic advantage for the organization to succeed in a changing environment 1. There were research evidences that showed that environmental analysis was linked with improved organizational performance. Hence, it remained insufficient to assure performance, without aligning information with strategy. The main debate in strategy and environment was concerned with the primary importance of the environmental analysis in strategy formulation and implementation. 84

Reserve Bank of India

The Reserve Bank of India is fully owned by the Government of India. Initially it was viewed to bring the greater coordination of the monetary, economic, and financial policies. During fifties objectives of Reserve Bank of India underwent changes. It was recognized that Reserve Bank of India needs to take on direct and much more active role, in developing machinery for financial development in order to ensure flow of finance in the country. Reserve Bank emerged as a regulatory and a growth promoting institution. In the beginning limited to the agricultural sector, the Bank later covered small-scale industries as well. The affairs of Reserve Bank of India are governed by the central board of directors. The board is appointed by the Government of India according to the Reserve Bank of India Act.

The preface of the Reserve Bank of India describes the basic functions of the Reserve Bank as: “to regulate the issue of Bank Notes and keeping of 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” 2.

The Reserve Bank‟s freedom may be viewed broadly to the areas like management including personnel matters, financial aspects, and to conduct polices. Managerial freedom refers to the procedures for appointment, term of office and dismissal procedures of top central bank officials and the governing board. It also includes the extent and nature of representation of the Government in the governing body of the central bank. 85

Financial freedom relates to the freedom to decide the extent of Government expenditures directly or indirectly financed by the central bank‟s credits. Finally, policy freedom is related to the flexibility given in the formulation and execution of monetary policy, under a given authorization.

Reserve Bank of India has over the years been responding to changing economic circumstances. The Reserve Bank of India performs the function of financial supervisor under the guidance of Board for Financial Supervision. This board undertake consolidated supervision of the financial sector comprising of Commercial Banks, Financial Institutions, and Non-Banking Finance Companies. The key functions played by this board were restructuring of the system of Bank, introduction of off-site scrutiny, strengthening the role of legislative auditors, and strengthening the internal defences of supervised institutions. Currently this board...
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