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|Indian Banking: Journey from Nationalisation to Globalisation||By Arun Kaul, CMD, UCO Bank|
Indian banking sector’s progress since nationalization
By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer although banks in India except the State Bank of India, continued to be owned and operated by private individuals. But a debate had started in various forums about the need for nationalization of the banking industry.
The Government of India, through an ordinance, nationalized the 14 largest commercial banks on July 19, 1969. Thereafter the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill which received the presidential approval on 9 August 1969. [With subsequent round of bank nationalizations, as on 31st March 2011 there are 20 public sector banks in the country excluding the State Bank group].
More than anything else, nationalization resulted in a significant shift in the focus of bank lending towards social banking and inclusive growth. The ‘priority sector’ concept was introduced by bringing inter alia agriculture and small-scale industry within its ambit and it was made mandatory for banks to provide 40 per cent of their net credit to these ''priority'' sectors. Apart from these measures, ever since nationalization, banks were also actively involved in various poverty alleviation and employment generation programmes.
The policy initiatives did yield results. Enhanced agricultural credit by the banks led to the success of green revolution. Sharp rise in export activities by small-scale manufacturers during the ‘80s and ‘90s is attributable to bank credit provided to them.
Then came the financial sector reforms which were ushered in the early 90’s when the then government embarked on a policy of liberalization, licensing a small number of private banks. These were the New Generation tech-savvy banks. This move, along with the other reform measures dramatically changed the banking scenario in the country with the focus shifting to institutional soundness and profitability.
Banks were mandated to follow prudential norms such as maintaining capital adequacy, identification and provisioning for bad debts and so on. Interest rates were also deregulated.
These measures coupled with the rapid growth in the economy of India, helped the banks to register strong balance sheet growth in an environment of operational flexibility. The health of the banks improved significantly, both in terms of capital adequacy and asset quality. Side by side, the PSBs were made to follow international best practices by adopting Basel guidelines.
Post-liberalization the Indian banks had to embrace IT in a big way to compete with the tech-savvy international and private banks. The new wave ushered in a modern outlook and technology enabled business processes in traditional banks. The face of Indian banking underwent a sea-change as technology became a key enabler for the banks to improve efficiency, service delivery and back end processing. Technology empowered banks like never before allowing quick and faster service accessible to a vast cross section of people at a minimum cost through alternate delivery and distribution channels that supplemented the brick and mortar branches. People experienced the comfort and convenience of anytime and anywhere banking.
Throughout this transformation, the policy makers, regulators and the bankers never lost sight of ensuring inclusive growth. Banks remained committed to social banking by reaching out to all sections of the society in every nook and corner of the country and directing credit towards important but unreached section of the population.
The key issues facing banking sector today
Financial strains have started to affect the real economy across the globe. The global economy is in turmoil following debt concerns, slackening economic activity and weakening financial systems. In the days ahead, the Indian financial markets will continue to be conditioned by the evolving macroeconomic developments, both global and domestic.
In this environment, Indian banks, the dominant financial intermediaries in the country, face several challenges.
The future of Indian banking sector
For banks, India offers both challenges and opportunities. India is a USD 1.2 Trillion economy growing at 8% or thereabouts and having a population of 1.25 billion. But more than 50% of our populace remains outside the ambit of formal banking. There is no dearth of opportunity for the banks in India to grow.
According to a recent McKinsey report on the Indian banking industry
On one hand, banks have to mitigate the risks in the current economic environment through superior management and greater operational excellence, while on the other they have to fundamentally transform their business processes to capture the opportunity.
Looking ahead, admittedly bank profitability could decline somewhat in the immediate future. But from a long term perspective, Indian banks appear distinctly well placed compared to its western counterparts to weather the storm in global finance. They are well regulated, adequately capitalized and have access to stable retail deposit. And the country’s economy provides Indian banks the opportunity to grow. Even if real economy grows at 7%, the banking industry will grow 18 to 20% year on year.
Steps to improve service delivery of UCO Bank
The Bank is creating focused verticals leading to “sales & service” approach to banking. The non-customer facing jobs are being shifted to the back offices to allow branch staff concentrating on Customer Relationship Management.
UCO Bank is leveraging its pan-India branch network and impressive technology deployment to offer new products and services that would attract the customers particularly the young generation. The Bank is giving focused attention to augment its customer base by constantly scanning the market competition and coming out with appropriate offerings to attract new customers. The Bank has already put in place facilities like:
The Alternate Delivery Channels implemented by the bank provide a fast, secure and authentic mode to transact in real time from anywhere, anytime.
Some of the Bank’s future plans include:
Future strategy of UCO Bank
The banking industry in the year 2020
At present, about 40 crore Indians are in the age group of 15 to 35 who were all born post- bank nationalization. The young citizens aspire for a better way of life than that lived by their ancestors. The banking sector, the principal financial intermediary in the country, has to support and accelerate the engine of growth and make people’s aspirations a reality.
According to a study, by 2020, bank branches will grow 2x, ATMs 5x, Investment Banking 10x and mortgage business will cross Rs. 40 trillion.
By the end of this decade, experts are predicting some major technology developments - “Cloud computing”, Analytics with ‘Big Data’ (a combination of proprietary and public data), User-focused technologies ( to leverage the social media) etc. - that would impact the banking business in a big way. Banks, which are able to leverage these technological innovations, will be able to create a significant advantage over their peers. Furthermore, with more and more focus on sustainable development and green initiatives, banks have to go in for paperless operations to the maximum extent possible so as to improve efficiency, save our natural resources, and also reduce overhead expenditure.
At the time of their nationalization, the banks were mandated to perform a solemn duty of creating an environment conducive to nation-building by taking banking to the unbanked, making cheaper credit available to people, providing capital to the industries, supporting development of physical infrastructure and human capital. During the last forty two years the Indian Banking sector left no stone unturned to bring this mandate to fruition. But the mission of nation-building remains an ongoing process.
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