Q. What are the key challenges before the Indian banking industry? And what measures should be adopted by the regulators and Banks to overcome them?

A. Following are the key challenges before the banks

• Leveraging technology for business growth.
• Improving Asset Quality
• Augmenting fee income
• Enhancing overall profitability
• Maintenance of Capital Adequacy Ratio
• Integration of Risk management systems
• Grooming, retaining Talent and Succession Planning
• Corporate Governance

Every bank plans out their own strategies to address these challenges to enhance their competitive ability and to provide quality service to customers. The granular components of strategies will be aligned to the individual strengths of the bank. Building a right risk appetite, aggressive positioning in the market, product differentiation, customer centric decision making practices, pursuing ethical values and upholding ‘customer first’ approach in the management of banks are some of the key factors requiring focused attention for a robust business growth.

The regulators from time to time have put in place systemic measures and rigorous internal controls. Banks will have to balance between business interest and staying ahead of prudential standards. The striking strategies for a right trade off between these two factors will be the key business differentiator.

Q. W hat are the key growth drivers for the Indian banking industry? What are the emerging trends in the Indian banking industry?

A. Key growth drivers will be mobilization of low cost deposits. Innovating customized mix of short deposit products to attract more resources at economical cost by using technology will be desirable.

The major focus areas will be financing technology and digitalization, nano-technology projects, IT parks, retail sector, health care, health clubs, lifestyle ventures, development of fashion and design technology, private security services, training and private education, knowledge parks, entertainment industry, travel and tourism. Infrastructure projects such as Express highways, multiple flyovers, bridges, development of waterways, ships and ship building, ports, airports, power, telecommunication and such other projects.

Other focus areas could also be financing agro and agro based food-processing industries. Floriculture, horticulture, processing and export of seafood and organic farming. Financing units generating commercial non-conventional energy such as solar, windmills, energy from recycled waste, projects reducing carbon emission, green projects etc will also be needing attention.

Q. Do you believe that there is a need for consolidation in the Indian Banking industry? What according to you are the merits and demerits of consolidation?

A. The need for consolidation depends on the size, reach and strength of individual bank. As a first step banks are already getting into strategic alliances, entering into collaborations, and partnership with other financial intermediaries, like general insurance, joint venture, life insurance and mutual funds. The obvious merits/demerits of consideration could be as follows:

Merits:

• Better economies of scale in terms of attaining critical business volumes.
• Consolidation of branch network to save costs.
• Better Synergy of skills/talent of employees, more particularly in specialized areas.
• Ability to fund large loans due to larger capital base.
• Better scope to leverage improved technology facilities.

Demerits:

• May create greater concentration of risks posing new set of systemic risks.
• Likely fissures in industrial relations due to cultural differences
• Potent problems in the integration of infrastructure, business processes, delivery channels that may lead to more post merger costs.
• Dissatisfaction among merged entity may bring down productivity
• May lead to complacency of ‘bigness’ making such entities less competitive

Q. W hat role does technology play in your bank in terms of enhancing customer experience, and improving functional efficiencies?

A. Technology has changed the face of banking, more particularly in the last five years. We are now fast cruising towards virtual banking. The visible benefits of IT in day-to-day banking are quite well known. There is ‘Anywhere banking’ through core banking systems, ‘Anytime Banking’ through Automated Teller Machines (ATMs), and Net and Mobile banking in some banks. In addition, IT has enabled the efficient, accurate and timely management of the increased transaction volume that comes with a larger customer base.

The onset of new Core Banking concept to a great extent emerged as a centralization process. The Banks have also undergone a massive change in terms of improvement in the IT communication network, which has greatly facilitated, not only the networking of the internal communication processes, but the integration with the external payment system gateways as well. CBS is also capable to process customer relationship management, treasury, centralized clearing operations, ATM application, electronic banking, management information system, internet banking, mobile banking, smart card operations, biometric ATMs, chip based electronic purse and such other customer convenient electronic devices.

Moreover, with the implementation of CBS and various other technology initiatives branches will become more efficient in their operations. They can interact and satisfy the customers providing them state of the art experience with latest technology. Hence technology has redefined banking system highlighting the significance of customer service.

Q. As an aftermath of the global financial crisis, do you see an alarming rise in NPAs for your bank? What are the sectors where you think NPA levels may rise phenomenally?

A. No, the impact of global financial crisis did not materially alter the status of NPAs in our bank. Through wellcoordinated and sustained monitoring efforts, the bank’s global gross NPAs have come down from 1.84 % to 1.27 % and net NPAs down from 0.47 % to 0.31 % during the year reflecting the robustness of asset quality. This is despite global advances recording a growth of 35 % in 2008-09. As far as our bank is concerned, the financial crisis did not impact asset quality.

Due to its likely spill over impact in 2009-10, we have taken proactive measures to step up monitoring on close and continuous basis on certain segments like retail loans, SME where we foresee more delinquencies. We are sure that our enhanced surveillance and monitoring system will be able to prevent any large-scale slippages during the current year too.

Q. What initiatives has your bank undertaken in the areas of Micro finance, Financial inclusion etc?

A. As part of our efforts for more inclusive growth, we have adopted certain villages for 100 per cent financial inclusion. Further popularizing ‘no-frill’ accounts, participating actively in government sponsored National Rural Employment Guarantee Act (NREGA) projects to reach out to more people, collaborating with service providers for introducing smart card palm held swipe systems to promote low scale banking in villages. We have host of micro finance products and are roping in more self-help groups to disseminate banking in the hinterland. Our sponsored Regional Rural Banks are also closely associated with micro finance and financial inclusion. We are also using the model of Business Facilitator and Business Correspondents to make banking available at affordable cost to the customers.