INDIAN BANKING SYSTEM: THE CURRENT STATE & ROAD AHEAD
Federation of Indian Chambers of Commerce & Industry
Federation House, Tansen Marg, New Delhi – 110 001
India’s banking sector is growing at a fast pace. It has become one of the most preferred banking destinations in the world. Indian markets provide growth opportunities, which are unlikely to be matched by the mature banking markets around the world. FICCI conducted a survey to analyze the potential offered by Indian Banking System and achievement of global competitiveness by Indian banks. The questions largely revolved around where we are, how will India go about it, what structures need to be created and when will it happen?
▪ Some of the major strengths of the Indian banking industry, which have helped mark its place on the global banking scene as highlighted by our survey respondents were Regulatory Systems (84.21%), Economic Growth Rate (63.15%), Technological Advancement (52.63%), Risk Assessment Systems (47%) and Credit Quality (42.1%) ▪ Some of the areas that need to be geared up for future growth, identified by the survey respondents are Diversification of markets beyond big cities (84.2%), HR Systems (63.15%), Size of banks (52.63%) High Transaction Costs (47.3%), Banking Infrastructure (42%) and Labour Inflexibilities (42%). ▪ To a question on achieving global competitiveness, Consolidation in the financial sector has emerged to be the most significant measure required to create world class banking system followed by Strict Corporate Governance Norms, Regional Expansion, Higher FDI limits and FTA’s. ▪ On being asked to rate India on certain essential banking parameters (Regulatory Systems, Risk Assessment Systems, Technological Systems and Credit Quality) in comparison with other countries i.e China, Japan, Sinagapore, Russia, UK and USA, the following results emerged: ➢ Regulatory systems of Indian banks were rated better than China and Russia; at par with Japan and Singapore but less advanced than UK and USA. ➢ Respondents rated India’s Risk management systems more advanced than China and Russia; at par with Japan, and less advanced than Singapore, UK and USA. 83% of our respondents highlighted that Basel II implementation would take us a step ahead in global competitiveness. ➢ Technological systems of Indian banks have been rated more advanced than China and Russia; at par with Japan, but less advanced than Singapore, UK and USA. ➢ Majority of respondents quoted credit quality of Indian banks better in comparison with China, Japan and Russia; at par with Singapore but below par with UK and USA. ▪ 75 per cent of the foreign bank’s respondents rated their working experience in India as “ extremely good”. Given India’s potential over the next decade and beyond, 100 per cent foreign banks respondents stated that they have formulated strategies for future expansion in India. ▪ 55 per cent of the respondents highlighted that the FTA’s signed by India till now have helped enhance global trade and thus been of help to banks in their global expansion strategy. ▪ On possible Comprehensive Economic Co-Operation Agreement (CECA) with EU, 85 per cent of domestic banks respondents also emphasized that India should not give full domestic status to EU based banks under the proposed India-EU CECA. ▪ 69 per cent of respondents stated that 20 – 30 % proportion of their total Income is constituted by fee-based incomes. Bancassurance and selling of mutual funds were recognized as the most tapped business opportunities by the bankers closely followed by Forex Management. Out of these selling of mutual funds was identified as the most profitable venture by 47 per cent of respondents. ▪ The penetration of banking services to Indian households stands at a mere 35.5%. Some of the efforts highlighted to increase this penetration level were: Tapping...
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