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Indian Banking Sector has Grown by Leaps and Bounds Interview with B. A. Prabhakar, Executive Director, Bank of India

Assessment of the current situation in banking industry in India?
Since Indian economy has shown a bit of moderation in growth, banking sector might also show some moderation. However, we would still see a growth of 17-18% in credit and 19% in deposits. Successive hikes in base rates/PLRs may result in some incremental NPAs. Gross NPAs would rise to about 2.7% for the banking system from 2.3% at present. However, lower IIP numbers and decline in stock market performance would give a downward bias to yields and decrease investment provisions.

Indian banking sector’s significant progress since nationalisation
Since nationalisation, Indian banking sector has grown by leaps and bounds. There has also been a significant increase in branch network across geographical segments The combined branch network of the banking system is 89110 as on March 2011. Banks have also adopted technology in a big way since most of the banks are in the Core Banking platform. Adoption of RTGS and NEFT, on-line banking, mobile banking, etc are some of the path breaking initiatives. Financial inclusion is adopted in a big way to achieve 100% penetration of the banking sector.

Where Indian banking sector stands compared to international sector?
Indian banking sector compares favourably with the international sector in major financial parameters. The manner in which we emerged unharmed from the East Asian crisis and the 2008 global meltdown speaks volumes of our robustness. While banks in the developed world took recourse to instruments like CDOs, we had negligible exposure to the same. However, we still do not have a single Indian bank among 10 largest banks in the world. We, therefore, need bigger banks to be major players in the global space and for this we need to focus on inorganic growth as well.

Key issues facing banking sector today?
There are concerns on asset quality arising out of decline in growth rates. Reports estimate the Gross NPAs to touch 2.7%.Manpower planning to fill the vacuum created due to large scale retirement is yet another challenge. Banks have to innovate continuously to bring down the cost of intermediation as margins are likely to be under pressure. Yet another challenge is to achieve the size necessary to be a global player and maintaining adequate capital.

Thrust areas for banking sector in India?
Sectors contributing directly to GDP growth like SME, retail and agriculture should be the thrust areas. Financial inclusion is another major thrust area. Most banks currently adopt a Business Correspondent/facilitator model for implementing financial inclusion. Banks should also lay adequate thrust on putting in place an effective recovery mechanism by ensuring diligent pre sanction appraisals and post sanction follow ups.

Future of Indian banking sector?
Technology adoption by banks is set to increase in a big way as the future of banking would be absolutely technology driven. Only those banks which continuously innovate and bring new products to the market would survive. Banks would also need to significantly upgrade the skill sets of its staff in specialised areas like risk management. Our banking system would continue to grow without causing any systemic risks as we have a strong regulatory system.

Future strategy of Bank of India?
Our future strategy would be to consolidate our position as a major player in the banking space. In fact, we have put in place a programme christened ’Sankalp’ to achieve set targets. We are expanding globally by setting up branches in new territories. We are also entering into para banking activities like asset management by tying up with major players. We would like to give greater thrust on augmenting non interest income since interest income will come under pressure due to competitive forces.

What you would advise your customer as to the best way to manage money?
Before advising the customer on managing his money, we need to understand his financial requirements both in the short term and long term and also his risk appetite. For instance, youngsters in the age group of 25-35 can have high risk appetite whereas people in the age group of 55 and above require financial security. With our expertise we would be in a position to advise our customers to achieve a proper trade off between risk and return. Needless to say, the investment portfolio of a customer needs to be well-diversified.

What are you doing about service improvement in Bank of India?
True to our motto, we believe in ‘relationships beyond banking’ and customers have always been given an important place. We have put in place effective grievance redressal mechanisms at branches and our Controlling Offices. We have also introduced technology to offer better products and also for efficient delivery at an affordable cost. The staff is continuously trained on soft skills to improve interaction with customers.

How do you see banking industry in 2020?
By 2020, the share of banking sector in GDP would increase tremendously. For instance, while the credit to GDP ratio is close to 50% now, it would move to about 75% by 2020. There may be mergers and acquisitions which would give us enormous scale and at least one of the banks in the global top 10 would be an Indian bank. Almost every village would have a branch and most households would have a bank account. Number of branches would increase at a Compounded growth rate of 10% by that time.

Priority sector targets are not being met in many sectors. the reasons?
We are committed to honouring priority sector lending targets. There may be shortfall during any intermittent periods but by the end of March, we would ensure that the targets are achieved. Having said that, this would also depend on the actual demand. For instance, if the farm sector growth is good, there would be better demand. Thus, while we are sparing no efforts to achieve priority sector lending targets, actual growth in the economy is equally important.

Recent activities of Bank of India?
Our Bank is in the process of expanding globally and we have a presence in 19 countries. We recently opened a subsidiary in New Zealand and continues to scout for such opportunities. To achieve time bound targets, we have launched a novel initiative named ’Sankalp’ which has a comprehensive agenda. The focus would be on mid corporate, SME and retail business as also augmenting fee income. Several initiatives such as the National Banking Groups are launched for augmenting business mix. We also introduced specialised centres like ‘SME City Centre to ensure credit flow to such segments. We are also venturing into areas like asset management and recently entered into a tie up with Bharti-AXA. We constantly focus on our customers and any new product offering is targeted at them.

Any comments on government policy?
Being the majority owners in public sector banks, government has provided the needed support whether it is in terms of capital or functional space. Government has also accorded sufficient autonomy to banks in terms of recruitment and promotions while allowing banks with sound financials to earmark a certain share of net profit for performance incentives. Such measures go a long way in improving productivity.

Any other observations
The medium term outlook on the banking sector is quite positive. With clarity on certain policy issues, we would see growth picking up in infrastructure sector, which would augur well for GDP growth. If the economy starts growing at 8.5-9%, banks will see a significant improvement in asset quality and overall health.

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