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|Basel II: Another Key Challenge||Interview with MBN Rao, CMD,
What is your assessment of the current situation in the banking industry in India?
The present banking environment have several positive features to its credit, thanks to the path breaking and market led policy initiatives and more importantly, the proactive role played by the banking entities. Sound regulatory environment coupled with prudent risk management has been responsible for making Indian banking resilient to both internal and external shocks. With the adoption of global best practices, Indian Banks have reinvented their core competence and have avoided the recent financial turmoil. Banks are doing exceedingly well under core business as well as earnings. The major feature relates to the increasing application of IT in banks have immensely helped streamlining the payment and settlement system. As Indian economy is poised to sustain its growth, Indian banking sector is well placed to experience robust growth in the coming years. The banking industry in India is relatively better placed to gain from the competition, consolidation and convergence in post-Basel II and Post 2009 scenario.
How do you view the Indian banking sector’s significant progress since nationalization?
Post Nationalization, the spread of branch network saw rapid expansion. Nationalization of banks gave way to the balanced disbursal of credit with adequate thrust on the priority sectors. Apart from this, Clientele base of the banks recorded a significant growth. In 1991, the introduction of financial sector reforms have significantly strengthened the commercial banking sector in terms of profitability, asset quality and bottom-line growth. Several balance sheet and profitability indicators of the Indian Banking sector have inched closer to the global benchmarks. Adoption of international best practices in several crucial areas of importance, such as, prudential norms, banking supervision, data dissemination and corporate governance have collectively enhanced the resilience of the banking system.
Where does Indian banking sector stands compared to the international banking sector?
Indian Banking sector has grown manifold not only in terms of balance sheet size but also in profitability and efficiency matrix. Sound regulatory and supervisory systems along with a well calibrated reform process have transformed the financial sector in the country to match with global financial system. The adoption of international best practices, such as, KYC and AML norms, fair practices for customers and various prudential norms– income recognition and asset classification have further strengthened the banking sector in India. Its sound footing and strong fundamentals are now comparable with the best in the world.
What are the key issues facing banking sector today?
The world is experiencing an increased level of globalization and openness, facilitated by fast development of Information and Communication Technology. One of the major issues associated with the banking system is that many banks are small in size and limited geographic presence. If the financial system has to be resilient to the foreign competition, Indian banks need to grow in to match with global size and stature. This requires the consolidation among banks. Three factors, which are increasingly going to shape Indian banking sector are competition, consolidation and convergence. These apart, prevalence of unorganized financial structure and also large-scale financial exclusion has significantly affected the growth of the banks and the economy. This is going to unlock growth potential in the coming years.
Which are the thrust areas for banking in India?
The banking, being a service-oriented business, has been experiencing a continuous change, ushered in by the advent of information technology and innovations at the products/ services level. Competition in the banking industry will further intensify with the entry of foreign banks post 2009. Strengthening the financial sector through mergers and acquisitions (M&As), technology upgradation and human resource management will be the most vital areas of for the banking industry in India. Making a smooth switchover to the Basel II framework from March 2008 is another key challenge for banking sector in the country.
How do you look at the future of Indian banking sector?
Banking industry in India has undergone significant changes in the recent past, especially after the initiation of the reform process in 1991. Many of the Indian banks have succeeded in expanding and upgrading the financial services through the introduction of tech-enabled services, advanced delivery channels and innovative financial products. Competition from foreign banks is expected to intensify with increasing diversification and specialization in financial services, especially post 2009. Pressure for operating on a thinner spread and enhanced operational efficiency is emerging as the new banking order post 2009, with expected forays into highly competitive foreign market.
What will be the future strategy of Canara Bank?
For the last two financials FY06 and FY07 have seen Canara Bank retaining its number one status among the nationalized banks in terms of aggregate business. The Bank has the necessary wherewithal and business strategies in place to continue its position in future also. To emerge as a strong ‘financial conglomerate’, the Bank has recently formed Joint Ventures in Insurance and Asset Management segments with global majors as partners. In pursuit of global aspirations, the Bank has moved a step closer to its overseas expansion drive, with the permission by RBI for commissioning of 5 branches obtained out of 21 international centers identified for expansion in the medium term. Recently, the Bank has launched new brand identity to position itself as a value creator and further reinforce it image as a customer centric bank. The change in the external outlook has been supplemented by a host of internal changes- organizational restructuring and reorientation in terms of people, technology and business process to sustain growth. Going forward, the Bank will successfully explore new opportunities to position itself as a global bank with best practices.
What would you advise your customer to be the best way to manage money?
Canara Bank offers a wide range of products and services for wealth management. With the peaked interest rate scenario, the term deposits will be an attractive option for the savers. The Bank offers several special deposit schemes including SB Gold Scheme, Can Premium Current Account Scheme and others, which assures higher returns for the customers/ Savers. The Bank also cross-sells Mutual Funds and insurance products as part of the total financial solution.
What are you doing about improvement of the service of Canara Bank?
Canara Bank stands as a premier financial service provider in India with strong fundamentals and customer centric ethos. Canara Bank has significantly increased its delivery channels through over 1680 ATMs across the country for customer convenience. A significant number of the Bank’s branches are also offering internet and mobile banking and advanced payment system like RTGS and NEFT. The Bank is making all out efforts to bring a larger number of branches under Core Banking mode, for creating new revenue streams and enhancing operational efficiency. By end March 2008, about 1000 branches will be CBS enabled. Our current initiatives have been the introduction of Mobile ATMs, Bio-metric ATMs, e-Kiosks in rural areas. Canara Bank has already made several moves in the realm of total financial inclusion and most of our financial inclusion related initiatives are going to be technology driven for deeper and cost effective outreach to the un-banked and under-banked segments.
How do you see the Banking industry in 2010?
While the future policy initiatives are expected to ensure greater strength and stability in the system, a major part of the initiatives will be with an eye on progressive globalization of the economy. By 2010, the banking landscape is expected to witness significant changes for two important reasons. The implementation of Basel II capital accord will strengthen risk management systems of the banks. Further, intensification of the competition in the banking sector is likely to increase competency levels of banks and bring about transformation in the business of banking in terms of greater breadth of products, depth in delivery channels and efficiency in operations.
Priority Sector Credit targets have not been met in many cases… What is the reason behind it?
In sync with the policy focus on productive segments, the Bank has laid its utmost thrust on priority sector credit including most desirable segments of the economy-agriculture, SMEs, weaker sections and marginal farmers. The Bank’s performance under priority sector has been very good. Outstanding priority sector advances of the Bank as at March 2007 recorded a year-on-year growth of 22%. Priority sector advances formed 40.21% of the Bank’s net credit. During the first half year of FY 08, the Bank has recorded a year-on-year growth of 25% in priority sector advances covering 30 lakh borrowers. It also covered 12 of its 24 lead districts under total financial inclusion.
What about recent initiatives of Canara Bank?
Canara Bank has introduced a host of customer friendly initiatives in the recent time. Most recently, Canara Bank along with HSBC (Asia Pacific) Holdings and Oriental Bank of Commerce has formed a Joint Venture Company in Life Insurance segment. Similarly in Asset Management, Canara Bank has formed a Joint Venture with internationally acclaimed Robeco Groep N.V. for asset management. The customers of the Bank have the privilege of availing of the benefit of world class sophisticated products under Life Insurance as well as Mutual Funds. With the launching of new brand identity, Canara Bank will emerge more proactive in making its presence across clientele and business segments for a sustained growth.
Any comments on Government policy?
The reform process undertaken by the Government of India has changed the face of Indian banking environment. The policy initiatives have helped many banks to gain operational efficiency, diversified earnings profile, accounting standards, application of technology and augmented profit pool. More importantly, the competency levels have increased and most of the banks with the adoption of best practices have achieved stable top-line and bottom-line growth. Reforms in the financial sector, with the cautious and calibrated regulatory approach adopted by the RBI, have helped the banks in India become more resilient and stronger.
Have you any observation on any other issues?
Future of Indian banking sector is going to be increasingly shaped by competition, consolidation and convergence. These forces will augment efficiency level and reduce intermediation cost for the benefit of customers, with introduction of product sophistication, wealth management and relationship banking. Banking will be more tech-savvy and experience seamless expansion of branchless banking, with a large coverage of hitherto under-banked and un-banked population.
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