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Future would be Technology Driven
Interview with M. S. Sundara Rajan, CMD, Indian Bank

What is your assessment of the current situation in the banking industry in India?
Presently the banking environment in India is underpinned by:
1. Sufficient operational flexibility for banks
2. Technology-enabled products/payments & settlement system.
3. Integration of a risk management culture within the strategic framework with availability of various risk management instruments
4. Bincreased competition for banks on both assets as well as liabilities side,
5. Emergence of other non-bank financial intermediaries,

The Indian banking has finally risen up to the competitive dynamics of the ‘new’ Indian market and is addressing the relevant issues to take on the various challenges of globalization. Banks have become futuristic and proactive players employing the latest IT solutions to meet the multifarious requirements of the large customer base.
The unleashing of new products and services has galvanized players at all levels of the banking and financial institutions market grid to look anew at their existing portfolio offering. Indian banks are now quoting at higher valuation when compared to banks in other Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to huge Non Performing Assets (NPAs) and payment defaults.
On the downside, the increased market exposure of the financial system and its vulnerability to macroeconomic shocks highlight the need for greater internal control.  Asset Liability management, increasing pressure on spreads and Risk management will play a vital role on the profitability of banks.

The growth in the disposable incomes and changing lifestyles calls for Product Innovation and marketing.  The market is progressively changing into a buyers’ market and banks have to anticipate and understand the needs of the customers to remain ahead in business.

How do you view the Indian banking sector’s significant progress since nationalisation?
Post nationalisation, the progress of the Indian Banking sector, can be seen in two phases
1. From Nationalisation to reforms in 1991 and
2. Post reforms.
The nationalisation of banks brought about a paradigm shift in the banking sector and resulted in the expansion of banking activities to the hitherto unbanked areas and channeling credit to priority sectors.

In addition to fulfilling the social objective, in the post reforms period, the banking sector has moved to prudential banking aimed at improving the efficiency of the financial system. The operational constraints on banks were removed with the deregulation of interest rates and lower statutory pre-emption.

Post reforms, the liberalization of the economy led to dilution in Government’s stake through public issues with banks accessing the capital market for their capital requirements, diversified to other areas of business like insurance, mutual funds etc. to become a ‘One Stop’ financial store for customers and Retail Banking. 
Technology as the catalyst has transformed the face of banking in the country. Branchless banking is the latest fad to reach both the elite and the excluded masses.

Where does Indian banking sector stands compared to international banking sector?
Indian Banking sector stands comparably well with those of the developed and emerging countries.  Capital adequacy is an indicator of the bank’s soundness because of its role as a buffer against losses that a bank may suffer. The overall capital adequacy in India was 12.3 per cent in 2007, up from 11.4 per cent in 2001, way above the Basle norms.  Like-wise, the capital to asset ratio, which measures the extent of leverage enjoyed by banks, was at 6.3 per cent in 2007.  We have to gain in size to compete with the global giants, which would become possible once the consolidation in the industry picks up.

What are the key issues facing banking sector today?
The enhanced role of the banking sector in the Indian economy and the increasing levels of competition have placed numerous demands on banks, the foremost being Customer service.  It is no longer adequate for banks to provide only traditional banking services. Banks have to provide the latest customized bouquet of financial services to their clients, including cross selling of financial products and the ultimate aim is to offer a one-stop-shop for meeting varied customers' financial needs.
Technology: Banks in India have taken the initiative and invested heavily in technology but the challenge in this regard will be for banks to ensure that they derive maximum advantage out of their investments in technology and to avoid wasteful expenditure.

Basel II implementation: Implementation of Basel II is seen as one of the significant challenges facing the banking sector. This will require more capital for banks in India due to the fact that operational risk is not captured under Basel I and the capital charge for market risk was not prescribed earlier.
Human Resources: With a lot of their staff retiring by 2010, banks will have to take a relook at their recruitment plans.

The future of banking would be technology driven. The implementation of Basel II norms in 2008, in addition to shoring up their capital through issues of IPOs and bonds, banks would have to concentrate on taking the impaired assets off their balance sheet.
Which are the thrust areas for banking sector in India?
Rural lending and financial inclusion are the thrust areas in banking today.  Technology based strategies have to be explored to take banking to the rural areas. The 185 million unbanked people provide a huge opportunity which banks have to exploit through innovative products.

How do you look at the future of Indian banking sector?
The contours of the Indian banking system are expected to undergo a major transformation in the years to come and specially post 2009 with the entry of foreign banks significant changes are expected to take place.

Competition will intensify from domestic and international banks and banks in India need to grow in size of Global standard. “Size Does Matter” in such a scenario.  Banks will have to prepare themselves for consolidation with renewed focus on corporate governance along with risk management and compliance of Basel II norms. The issue would be of size, turnover and innovation.

What will be the future strategy of Indian Bank?
The Bank has stepped into its 101st year and is poised for still higher growth providing value to all its stakeholders namely Customers, Government of India -the major share holder, other share holders and employees.  Our strategy in the coming year would be to focus on technology, financial inclusion projects and education loans in line with our vision of being a common man’s bank.

With regard to business, the bank will be aggressive in raising its market share of its total business. Major portion of the growth in credit should be achieved through new customers entering into our fold.  Special focus is being given for lending to infrastructure (especially power, telecom, educational institutions and hospitals/health care centres) which is the trust area.

We propose to give more thrust to the SME/agriculture sector in the coming years.  The new delivery channels like smart cards, business facilitators, business correspondents, channel financing, Venture capital will be taken up. In agriculture, deployment of credit will be through the plethora of Agriculture structured loan products. While focusing on credit growth, creating and sustaining quality of asset portfolio will be the aim. In deposits, the focus would be on retail deposits.

What would you advice your customer to be the best way to manage money?
It would be at the interest of all customers to have a financial planning done at the earliest taking into account their income and expenditure. This would enable them to have a healthy and happy future. Savings must become a habit especially for the nextGen.  They should make their money work hard for them, take cautious risks and invest in the right schemes to get optimum returns. Bank deposits and mutual funds are the best bet even today.

What are you doing about improvement of the service of Indian Bank?
The bank has set up a Common Processing Centre on a pilot basis in Chennai to sanction loans for MSMEs, which has proved effective and is now in the process of replicating it throughout the country.
For the 4th year in a row, we were rated as the No.1 Service Brand among the entire South based service brands by A C Nielsen- ORG Marg.  The Bank was also conferred the Best Performance Award for Lending to Agricultural sector by the State of Andhra Pradesh.
We will not rest on our laurels but will make continuous efforts to delight our customers.

How do you see the banking industry in the year 2020?
India is viewed as one of the biggest growth stories among emerging markets and global banks are attracted to India.  Indian Banking has witnessed significant changes in the past decade.  Credit off take was in the range of 25 – 30 per cent in recent years and most of it is in the retail segment.  Technology has enabled the reach of banking to the hitherto unbanked areas. Given the thrust on infrastructure development, banking by 2020 would reach all the corners of the country.  It could be visualized that there would not be a single village in the country that is unbanked and every household would be banked.

Priority sector credit targets have not been met in many cases… What is the reason behind it?
Indian Bank has consistently exceeded the targets of priority sector lending.  It was 45.47 per cent, 47.98 per cent, 50.83 per cent and 49.37 per cent for the years’ ending 2004, 2005, 2006 and 2007 respectively, way above the stipulated norm of 40 per cent. With regard to non-achievement of priority sector target by other banks, it is for the concerned banks to comment.

What about recent activities of Indian Bank?
The bank’s recent activities include expanding of its branch network, deepening of technology with CBS, intensification of financial inclusion process etc. As of 30th January 2008, the Bank has 1508 branches and more than 98% of businesses are under CBS.  We have opened 9 Microsate branches and more are to be opened shortly to cater to the needs of Self-Help Groups and MFIs.  The Bank has renewed its focus on the SME sector and has established SME Central Processing Unit at Chennai to exclusively process SME proposals.

In micro finance, formation of new groups, financing of new SHGs/lending to MFIs/SHG federations through micro flex, SHG derivatives (Grihalakshmi, Vidya shoba), opening of new microsate branches and micro credit kendras is being encouraged.

For business development in the rural areas, Smart card banking, Kiosk banking and mobile phone banking is being encouraged. In line with the Government guidelines, more emphasis is given for Financial Inclusion and bringing more people from the lower strata of the society within the Banking network.  To facilitate faster inclusion and taking banking to the unbanked areas, the Bank has also set up bio metric ATMs and is using business facilitators for this purpose.

Any comments on government policy?
The pace of reforms doubled in recent times and global factors like WTO has reinforced the need to fasten the reforms process. GDP growth targeted at 8.5 per cent and growth with stability would be in the larger interests of the nation.

Have you any observation on any other issues?
No comments.

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