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Banks are the Custodians of the Public Money
Interview with R. K. Dubey, Executive Director, Central Bank of India

What is your assessment of the current situation in the banking industry in India?

Indian Banking system plays a crucial role in the socio-economic development of the country. The system is expected to continue to be sensitive to the growth and development needs of all the segments of the society. The banking system is still evolving in India in a transparent manner in its dealings and adopting global best practices in accounting and disclosures driven by the motto of value enhancement for all stakeholders.

How do you view the Indian Banking sector’s significant progress since nationalization?
Banks are the custodians of the public money. Nationalization of banks was in accordance with our national policy of adopting socialistic pattern of society. Nationalized banks had the maximum deposits with them as compared to other banks. They are the lifeline of our financial system & significantly influence the economy of the country.

Although there were some criticism of this step of government initially but it was the necessity of the time to boost investment in the priority sectors & overall economic development of the country.  After Economic Reform of 1991, the Indian banking industry has entered into the new horizons of competitiveness, efficiency and productivity. It has made Indian banks more vibrant and professional organizations.

Where does Indian banking sector stand compared to international banking sector?
Status of Indian banking industry when compared with other countries are:
Structure of the industry:
The number of large and medium domestic banks, tends to be much larger in developed countries as compared with emerging economies. This is perhaps reflective of differences in sizes of economy and the financial sector.

Share of bank asset in total financial sector assets:
In most emerging markets, banking sector assets comprise well over 80 per cent of total financial sector assets, whereas these figures are much lower in developed economies. Share of state-owned banks in total banking sector assets in the emerging economies, with predominantly Government-owned banks, tend to have much higher state-ownership of banks as compared with their developed counterparts. However, the dominant role of banks in financial intermediation in emerging economies, in particular India will continue in the medium-term; and banks will continue to be special for a long time in future.

Industry concentration:
Is measured by the percentage of a country’s banking sector assets controlled by the largest banks. In most emerging market economies, the five largest banks (usually domestic) account for over two-thirds of bank assets. These figures tend to be much lower in developed economies. This is an interesting factor that should be borne in mind while considering the way forward in consolidation in banking sector in India.

Internationalization of banking operations:
As per cent of total domestic assets, foreign-controlled assets increased significantly in several European countries (Austria, Ireland, Spain, Germany and Nordic countries), but increases have been fairly small in others (UK and Switzerland). Among emerging economies, while there were marked increases of foreign-controlled ownership in several Latin American economies, the increase has, at best, been modest in East Asian economies. Available evidence seems to indicate some correlation between the extent of liberalization of capital account in emerging markets and share of assets controlled by foreign banks.

As per evidence available, the foreign banks in India who are present in the form of branches seem to enjoy greater freedom in their operations including retail banking in the country virtually on par with domestic banks, compared to most other developing countries. Further, the profitability of their operations in India is considerably higher than domestically-owned and, in fact, is higher than the foreign banks operating in most other developing countries. India continues to grant branch licenses more liberally than the WTO Commitments.

What are the key issues for Indian banking today?
Banks will have to adopt global standards in capital adequacy, income recognition and provisioning norms.
Risk management setup in Banks will need to be strengthened.  Benchmark standards could be evolved.
Regulatory set-up will have to be strengthened, in line with the requirements of a market-led integrated financial system
Banks will have to adopt best global practices, systems and procedures.
Banks may have to evaluate on an ongoing basis, internally, the need to effect structural changes in the organization. This will include capital restructuring through mergers / acquisitions and other measures in the best business interests.  IBA and NABARD may have to play a suitable role in this regard.
There should be constant and continual up gradation of technology in the Banks, benefiting both the customer and the bank. Banks may enter into partnership among themselves for reaping maximum benefits, through consultations and coordination with reputed IT companies.
Banks will have to set up Research and Market Intelligence units within the organization, so as to remain innovative, to ensure customer satisfaction and to keep abreast of market developments.  Banks will have to interact constantly with the industry bodies, trade associations, farming community, academic / research institutions and initiate studies, pilot projects, etc. for evolving better financial models.

Which are the thrust area for banking today?
The first phase of banking sector reform has come to a close and we are moving on to the second phase. In the years to come, the Indian financial system will grow not only in size but also in complexity as the forces of competition gain further momentum and as financial markets get more and more integrated. As the task of the banking system expands, there is need to focus on the organizational effectiveness of banks.
To achieve improvements in productivity and profitability, corporate planning combined with organizational restructuring become necessary.  Issues relating to consolidation, competition and risk management will remain critical. Equally, governance and financial inclusion will emerge as key issues for India at this stage of socio-economic development.

How do you look at the future of banking in India?
Banks and financial institutions have played major role in the economic development of the country and most of the credit- related schemes of the government to uplift the poorer and the under-privileged sections have been implemented through the banking sector. The role of the banks has been important, but it is going to be even more important in the future.
The task to be fulfilled by the Indian banks is truly formidable.  At one end we expect banks to be able to lend billions of rupees to large borrowers.  At the same time we want them to be able to deliver extremely small loans to meet the requirements of the small borrowers. We must reflect on the kind of organizational structure and human talent that we need in order to achieve these twin goals which are at the two extreme ends of the spectrum of lending.

What will be the future strategy of CBI?
Our future strategy will be focusing on following areas:
Banks will have to adopt global standards in capital adequacy, income recognition and provisioning norms.
Organizational restructuring to enhance the presence in the financial market & provide positive contribution to our economy
Global expansion to tap the international market
Focus towards universal banking to provide all the financial services under one roof
Increased focus on the SME & Mid corporate to boost the industrial growth & as well as achieve diversification
Adopting new technologies to meet the emerging needs
Proper HRM system development to get support from the employees to achieve our target as well as leading to employee satisfaction.

What are you doing to improve your customer service?
Many initiatives have been taken by our bank to boost customer services:
Our all branches are now linked by CBS platform; this facilitates our customer to perform the transactions anywhere in India.
Every year we are opening more than 1000 ATM to provide customer the flexibility of transacting 24 x7 with our bank.
Our online banking is one of the safest among the Indian banks; we have a grid card authentication system which has 25 cells which is very difficult to be replicated by any hacker.
We have entered tie up with the Chola Mandalam to provide the customer the insurance services anywhere in India through our bank.
We have tie–up with Angel broking to provide capital market services to our customers.

How do you see banking industry in 2020?
As said above banking industry is still emerging in India as compared to their counter part in the developed economies. But we are very fast in adapting new technologies & products to give a neck-to-neck competition with the global players. Technology implementation & skilled staff will be the key component to lead the race  

Priority sector target not met in many cases. What could be the reason?
The priority sector advance fell down due to declassification of several bulk advances from priority sector to non- priority sector by RBI. Moreover there has been slowdown in MFI sector after the adverse development in A.P. however there is need for increasing the reach in untapped area.

What about recent activities of CBI?
Fresh recruitment of P.O, specialist category officers & clerks to induct fresh blood & reduce average age of the bank.
Online trading facility for our Demat account holder.
Opening of Capital Market branch shortly.
Affordable Health Insurance Package for rural customer
Introduction of “CENT SAHYOG” – Hassle free financial assistance to SME sector.

Any comments on Government policy?
Considering the current liquidity status in the system, there is need for some monetary measures to ease the situation. There is need to follow fiscal discipline so that it support the monetary trans-mission effectiveness. Considering the softening of inflation & negative GDP growth, there is need to provide impetus to bank lending in terms of Rate-cut in phases.

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