Indian banking challenges, reforms & expected outcomes

Challenges for 2014-15

• Deceleration in economic growth impacting expansion of banking sector
• Maintaining asset quality in the face of growing non-performing assets and restructuring of advances
• Augmenting capital and maintaining prudential capital
• Preserving and augment profitability in a stressed environment
• Implementing financial inclusion & Direct Benefits Transfer
• Increased competition from both within the banking sector with various banks becoming aggressive
• Adopting and adapting to technological changes/innovation to meet regulatory norms and tap alternative channels
• Improving quality of human resources for working efficiently under the latest technological developments

Reforms on the way/ in the offing

• Stringent norms pertaining to bad loans and restructured assets and their resolution
• Consolidation and mergers and entry of new players
• Continuous bank licensing
• Converting some urban coop banks into commercial banks
• Separate licences for niche areas like wealth management investment banking
• Reforms in corporate debt market, government debt market & money market
• Focus on asset–liability management for banks
• Increased usage of technology in banking
• Focus on financial inclusion/deepening
• Steps to remove structural bottlenecks on credit delivery and free pricing of financial assets
• Transparency, improvement in clearing and settlement practices
• Reforms aimed at creating liquidity and depth for efficient price discovery of banking products

Expected outcomes

• Norms on NPA to improve asset quality, recovery, liquidity and the balance sheets of banks
• Consolidation of banks & new players to bring competition, innovation and productivity. It would also bring economies of scale
• Conversion of Urban banks into commercial banks could aid them to operate in mainstream with lower risk.
• Higher technology usage to help in upgradation, design more e-products; also sustain and scale business
• Financial deepening to make banking more inclusive, improve geographical coverage, reduce regional imbalances and credit to the unorganised sector

Based on CARE Survey