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					2010



   THE INDIAN BANKING
   INDUSTRY
           Vasant Seksaria

           Urvashi Sharma

           Vriti Aggarwal

           Yuthika Singh

           Rashi Shukla

           Shruti Dhir

           Preeyam Kanoi

           Smriti Gupta

           Ankit Gulati

           Karishma Jain

           Malvika Gupta

           Swarandeep Singh Chopra

           Nikita Sharma

                               PGDM -C




                              9/5/2010
Table of Contents
Introduction ......................................................................................................... 3
Market Analysis .................................................................................................. 5
Phases Of The Banking Industry Lifecycle ...................................................... 7
SWOT Analysis ................................................................................................... 9
PESTLE Analysis of Indian Banking Industry.............................................. 12
Key Trends......................................................................................................... 16
Competition in The Indian Banking Industry ............................................... 17
Labour Conditions ............................................................................................ 20
Financial and Financing Issues of a Bank ...................................................... 25
Future Landscape of Indian Banking Industry ............................................. 30
References .......................................................................................................... 33




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                    INDIAN BANKING INDUSTRY


Introduction
The Indian banking system is financially stable and resilient to the shocks that may arise due
to higher non-performing assets (NPAs) and the global economic crisis, according to a stress
test done by the Reserve Bank of India (RBI). Significantly, the RBI has the tenth largest
gold reserves in the world after spending US$ 6.7 billion towards the purchase of 200 metric
tonnes of gold from the International Monetary Fund (IMF) in November 2009. The purchase
has increased the country's share of gold holdings in its foreign exchange reserves from
approximately 4 per cent to about 6 per cent. In the annual international ranking conducted by
UK-based Brand Finance Plc, 20 Indian banks have been included in the Brand Finance®
Global Banking 500. In fact, the State Bank of India (SBI) has become the first Indian bank
to be ranked among the Top 50 banks in the world, capturing the 36th rank, as per the Brand
Finance study. The brand value of SBI increased from US$ 1.5 billion in 2009 to US$ 4.6
billion in 2010. ICICI Bank also made it to the Top 100 list with a brand value of US$ 2.2
billion. The total brand value of the 20 Indian banks featured in the list stood at US$ 13
billion .The current market structure in the Indian banking industry falls under the
monopolistic competition type. This implies that there are numerous firms in the industry,
each selling similar or the same products, but presented to the consumers as entirely different
products. Post liberalization, the numbers of banks in the Indian context have increased
rapidly. Governmental barriers to the same have been removed, and the market itself has
imposed minor barriers.

Financial Sector Reforms set in motion in 1991 have greatly changed the face of Indian
Banking. The banking industry has moved gradually from a regulated environment to a
deregulated market economy. The market developments kindled by liberalization and
globalization have resulted in changes in the intermediation role of banks. The pace of
transformation has been more significant in recent times with technology acting as a catalyst.
While the banking system has done fairly well in adjusting to the new market dynamics,
greater challenges lie ahead. WTO and Basel II, the Free Trade Agreements (FTAs) such as
with Singapore, may have an impact on the shape of the banking industry. Banks will also
have to cope with challenges posed by technological innovations in banking. Banks need to
prepare for the changes. In this context the need for drawing up a Road Map to the future
assumes relevance.

Commercial Banks, Co-operatives and Regional Rural Banks are the three major segments of
rural financial sector in India. Rural financial system, in future has a challenging task of
facing the drastic changes taking place in the banking sector, especially in the wake of
economic liberalization. There is an urgent need for rural financial system to enlarge their
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role functions and range of services offered so as to emerge as "one stop destination for all
types of credit requirements of people in rural/semi-urban centres.




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Market Analysis




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Phases Of The Banking Industry Lifecycle

Indian banking industry is currently in its evolutionary phase with growing liberalization,
Entry of foreign banks, direct intervention of state, rising technology etc

Phase I: Indigenous banks
Vedas and the Manusmriti: Kautalya’s Arthashastra suggested Maximum and Minimum
Interest rate. Kautalya, Yajnyavalkya and Manu recommended 15 per cent interest per annum
on capital. British rule almost wiped out these tribes by bringing European Banks from
urban.They moved to villages. They survive even today. Then came borrowers known as
Sahukaars who used 2 lend money with very little documentationand charged exorbitant rates
of interests compounded on Shorter Intervals .Sahukars mostly Mortgaged lending on Land,
Properties, Jewels etc and in most cases poor borrowers surrendered their properties.

Phase II: Direct Intervention
Government Interventions began in 1930s. The Reserve Bank which is the Central Bank was
created in 1935 by passing RBI Act 1934. The RBI is the sole authority for issuing bank
notes and the supervisory body for banking operations in India . Supervising exchange
control and banking regulations, and administers the government's monetary policy. Granting
licenses for new bank branches.

Phase III – Liberalization
Constitution of Narasimham committee and its report on Banking reforms in 1991.It covered
the areas of interest rate deregulation & directed credit rules, Statutory preemptions and entry
deregulation for both domestic and foreign banks .Lowering of the CRR and SLR .Interest
rate liberalization .Do away with Entry barriers. By March 2004, the new private sector banks
and the foreign banks share shared almost 20% of total assets .Prudential Norms act against
NPAs

Phase IV: Transition
Most Indian banks lagging behind the areas of customer funds transfer and clearing systems .
Over-staffed and not able to compete with new generation private banks .While these new
banks and foreign banks still face restrictions in their activities. New banks are well-
capitalized, use modern equipment and attract high-caliber employees. Indian banks were
given time to strengthen their balance sheets, consolidate and overall become more robust, so
that they could compete.

Phase V: Entry of Foreign Banks

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Two of domestic banks in India have turned like Foreign Banks. About 74 per cent of
holdings of ICICI and HDFC bank are in the hands of foreigners. Phase II of roadmap foreign
banks may be permitted to have overall investment of 74 per cent in the private banks of
India in April 2009. New banks in India-Royal Bank of Scotland, Switzerland's UBS , US-
based GE Capital ,Credit Suisse Group ,Industrial and Commercial Bank of China .Areas of
Concentration are Risk Management, customizing the products and Value creation.




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SWOT Analysis

Streangths
• Indian banks have compared favourably on growth, asset quality and profitability with other
regional banks over the last few years. The banking index has grown at a compounded annual
rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market
index for the same period.

• Policy makers have made some notable changes in policy and regulation to help strengthen
the sector. These changes include strengthening prudential norms, enhancing the payments
system and integrating regulations between commercial and co-operative banks.

• Bank lending has been a significant driver of GDP growth and employment.

• Extensive reach: the vast networking & growing number of branches & ATMs. Indian
banking system has reached even to the remote corners of the country.

• The government's regular policy for Indian bank since 1969 has paid rich dividends with the
nationalisation of 14 major private banks of India.

• In terms of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets relative to other banks in comparable economies
in its region.

• India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the
Government of India holding a stake)after merger of New Bank of India in Punjab National
Bank in 1993, 29 private banks (these do not have government stake; they may be publicly
listed and traded on stock exchanges) and 31 foreign banks. They have a combined network
of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating
agency, the public sector banks hold over 75 percent of total assets of the banking industry,
with the private and foreign banks holding 18.2% and 6.5% respectively.

Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector
banks and 20 per cent of government owned banks.

Weaknesses
• PSBs need to fundamentally strengthen institutional skill levels especially in sales and
marketing, service operations, risk management and the overall organisational performance
ethic & strengthen human capital.

• Old private sector banks also have the need to fundamentally strengthen skill levels.


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• The cost of intermediation remains high and bank penetration is limited to only a few
customer segments and geographies.

• Structural weaknesses such as a fragmented industry structure, restrictions on capital
availability and deployment, lack of institutional support infrastructure, restrictive labour
laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial
Banks (SCBs), unless industry utilities and service bureaus.

• Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU
banks below 51% thus choking the headroom available to these banks for raining equity
capital.

• Impediments in sectoral reforms: Opposition from Left and resultant cautious approach
from the North Block in terms of approving merger of PSU banks may hamper their growth
prospects in the medium term.

Opportunity
• The market is seeing discontinuous growth driven by new products and services that include
opportunities in credit cards, consumer finance and wealth management on the retail side, and
in fee-based income and investment banking on the wholesale banking side. These require
new skills in sales & marketing, credit and operations.

• banks will no longer enjoy windfall treasury gains that the decade-long secular decline in
interest rates provided. This will expose the weaker banks.

• With increased interest in India, competition from foreign banks will only intensify.

• Given the demographic shifts resulting from changes in age profile and household income,
consumers will increasingly demand enhanced institutional capabilities and service levels
from banks.

• New private banks could reach the next level of their growth in the Indian banking sector by
continuing to innovate and develop differentiated business models to profitably serve
segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions
as a means to grow and reaching the next level of performance in their service platforms.
Attracting, developing and retaining more leadership capacity

• Foreign banks committed to making a play in India will need to adopt alternative
approaches to win the “race for the customer” and build a value-creating customer franchise
in advance of regulations potentially opening up post 2009. At the same time, they should
stay in the game for potential acquisition opportunities as and when they appear in the near
term. Maintaining a fundamentally long-term value-creation mindset.

• reach in rural India for the private sector and foreign bank




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• With the growth in the Indian economy expected to be strong for quite some time-
especially in its services sector-the demand for banking services, especially retail banking,
mortgages and investment services are expected to be strong.

• the Reserve Bank of India (RBI) has approved a proposal from the government to amend
the Banking Regulation Act to permit banks to trade in commodities and commodity
derivatives.

• Liberalisation of ECB norms: The government also liberalised the ECB norms to permit
financial sector entities engaged in infrastructure funding to raise ECBs. This enabled banks
and financial institutions, which were earlier not permitted to raise such funds, explore this
route for raising cheaper funds in the overseas markets.

• Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed
them to raise perpetual bonds and other hybrid capital securities to shore up their capital. If
the new instruments find takers, it would help PSU banks, left with little headroom for raising
equity. Significantly, FII and NRI investment limits in these securities have been fixed at
49%, compared to 20% foreign equity holding allowed in PSU banks.



Threats
• Threat of stability of the system: failure of some weak banks has often threatened the
stability of the system.

• Rise in inflation figures which would lead to increase in interest rates.

• Increase in the number of foreign players would pose a threat to the PSB as well as the
private players.




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PESTLE Analysis of Indian Banking Industry

There exist several factors in the macro-environment that influence the decisions of the
managers of any organisation. Tax changes, new laws, trade barriers, demographic change
and government policy changes are all examples of changes at a macro level. To help analyse
these factors managers can categorise them using the PESTEL model.

PESTLE analysis is an acronym for "Political, Economic, Social, Technological, Legal and
Environmental analysis" and describes a framework of macro-environmental factors used in
the environmental scanning component of strategic management. It is widely used by
managers and policy makers to analyze the forces that are driving their industry and how
these factors influence their businesses and the whole industry in general.

Political factors
In India the focus of the policy makers is not solely on growth, but on sustained growth. This
requires a growth rate which is accompanied by moderate levels of inflation and a
manageable fiscal deficit. The key here lies in maintaining the balance between growth and
monetary tightening. The baseline projection of WPI for FY11 stands at 5.5% which would
require significant monetary tightening. Structural reforms also do affect the banking industry
significantly, there were a number of key policy developments in the banking sector during
fiscal 2010. In continuation of the liberalization of the bankingsector,inJune2009,bankswere
allowed to open offsite ATMs without prior approval from RBI. The branch authorization
policy was also liberalized in December 2009 and banks were allowed to open branches in
Tier III-VI cities without prior RBI approval. In August 2009, RBI also issued guidelines
relating to the issuance and operation of mobile phone based pre-paid payment instruments.
In July 2009, RBI issued a time schedule for the introduction of advanced approaches of the
Basel II framework in India whereby banks are required to apply to RBI for migration to
internal models approach for market risk band the standardized approach for operational risk
earliest by April 1, 2010 and for advanced measurement approach for operational risk and
internal ratings based approaches for credit risk earliest by April 1, 2012. RBI also initiated
several measures to increase systemic transparency and customer convenience. In April 2010,
RBI issued guidelines directing banks to replace the benchmark prime lending rate system
with a base rate systemeffectiveJuly2010.The guidelines recommend calculating the base rate
taking into consideration cost elements that can be clearly identified and are common across
borrowers. RBI also issued guidelines revising the method of payment of interest on savings
accounts to a daily average basis effective April 1, 2010.During fiscal 2010, with an
improvement in market conditions, RBI also initiated several measures to maintain systemic
stability. In November 2009, the provisioning requirement for advances to commercial real
estate classified as standard assets was increased from 0.4% to 1.0%. In December 2009, RBI
directed banks to achieve a total provisioning coverage ratio of 70% by September 2010. In

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February 2010, in its master circular on capital adequacy, RBI increased the capital
requirements relating to securitization exposures and provided enhanced guidance on
valuation adjustments for illiquid investment and derivatives. The guidelines also increased
disclosure requirements for credit risk mitigations and securitized exposures

Government and RBI policies affects the banking sector sometimes looking into the political
advantage in a particular party the govt. declares some measures to their benefits like waver
of    short     term     agricultural     loans,     to    attract     the    farmers   votes.
By doing so the profits of the bank get lower down. Various banks in the cooperative sector
are open and run by the politicians. They exploit these banks for their benefits. Various
chairmen’s of the bank are appointed by the government. Various policies are framed by the
RBI looking at the present situation of the country for better control over he banks.

Economic factors
Banking is as old as authentic history and the modern commercial banking are traceable to
ancient times. In India banking has been existed in one form or the other from time to time.
The     present      era    in   banking    may     be    taken     to    have     commenced
with establishment of bank of Bengal in 18089 under the government charter and with
government participation in share capital. Allah bad bank was started in the year 1865 and
Punjab national bank in 1895, etc… Every year RBI declares its 6 monthly policy and
accordingly the various measures and rates are implemented which has impact on the
banking. Also the union budget affects the banking sector to boost the economy by giving
certain concessions or facilities. If in budget savings are encouraged more deposits will
attract the banks and in turn they can lend more money to the agricultural sector and
industrial sector, therefore booming the economy. If the FDI limits are relaxed then more FDI
are brought in India through banking channels.

Social factors
Before nationalization of the banks the control of banks were in the hands of the private
parties and only big business houses and the effluent sections of the society were getting
benefits of banking in India. In 1969 government nationalized 14 banks. To adopt the social
development in the banking sector it was necessary for speedy economic progress consistent
with social justice in democratic political; system which is free from domination of law and
in which opportunities are open to all. Accordingly with national and social objective bankers
were given direction to help economically weaker section of the society and also provide
need based finance to all the sectors of the economy with flexible and liberal attitude. Now
the banks provide various types of loan to farmers, working women, professionals, and
traders. Also on apart from the recently education loan to the students and housing loans,
consumer loans, etc... Banks having big client or big companies say reliance etc…have to
provide something like personalized banking to their clients because these customers do not
believe in running about and waiting in queues and getting their work done. The bankers have
to provide these customers with special provisions and also at times benefits like food and



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organize parties for them. But the banks do not mind incurring these costs because of the kind
of business these clients bring for the bank

Technological factors
Indian banking industry, today is in the midst of an IT revolution .A combination of
regulatory and competitive reasons have led to increasing importance of total banking
automation            in            the          Indian         Banking            Industry.
Information Technology has basically been used under two different avenues in Banking.
One is Communication and Connectivity and other is Business Process Reengineering.
Information technology enables sophisticated product development, better market
infrastructure, implementation of reliable techniques for control of risks and helps the
financial intermediaries to reach geographically distant and diversified markets.
In view of this, technology has changed the contours of three major functions performed by
banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Further,
Information technology and the communication networking systems have a crucial bearing
on the efficiency of money, capital and foreign exchange markets.

The first set of applications that could benefit greatly from the use of technological advances
in the computer and communications area relate to the Payment systems which form the
lifeline of any banking activity. The process of reforms in payment and settlement systems
has gained momentum with the implementation of projects such as NDS ((Negotiated
Dealing System), CFMS (Centralised Funds Management System) for better funds
management by banks and SFMS (Structured Financial Messaging Solution) for secure
message transfer. This would result in funds transfers and funds-related message transfer to
be routed electronically across banks using the medium of the INFINET. Negotiated dealing
system (NDS), which has become operational since February 2002 and RTGS (Real Time
Gross Settlement system) scheduled towards the end of 2003 are other major developments in
the area.

Internet has significantly influenced delivery channels of the banks. Internet has emerged as
an important medium for delivery of banking products & services. Detailed guidelines of RBI
for Internet Banking has prepared the necessary ground for growth of Internet Banking in
India

Legal factors
The recent enactments like amendments to Debt Recovery Tribunal (DRT) procedures and
passage of Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 (SARFAESI Act) have helped to improve the climate for recovery
of bank dues, their impact is yet to be felt at the ground level. It would be necessary to give
further teeth to the legislations, to ensure that recovery of dues by creditors is possible within
a reasonable time. The procedure for winding up of companies and sale of assets will also
have to be streamlined.



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In the recent past, Corporate Debt Restructuring has evolved as an effective voluntary
mechanism. This has helped the banking system to take timely corrective actions when
borrowing corporates face difficulties.    With the borrowers gaining confidence in the
mechanism, it is expected that CDR setup would gain more prominence making NPA
management somewhat easier. It is expected that the issue of giving statutory backing for
CDR system will be debated in times to come. In the emerging banking and financial
environment there is an increased need for self-regulation owing to which the role of Indian
Banks’ Association has become more pronounced as a self regulatory body.

Environmental factors
The advent of liberalization and globalization has seen a lot of changes in the focus of
Reserve Bank of India as a regulator of the banking industry. De-regulation of interest rates
and moving away from issuing operational prescriptions have been important changes. The
focus has clearly shifted from micro monitoring to macro management. Supervisory role is
also shifting more towards off-site surveillance rather than on-site inspections. The focus of
inspection is also shifting from transaction-based exercise to risk-based supervision




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Key Trends




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Competition in The Indian Banking Industry

Forces for change in the industry

The long history of regulation and supervision, Indian banks have limited exposure to
sensitive sectors such as real estate, equity, etc, strict control over off-balance sheet activities,
larger holdings of government bonds (which helps limit credit risk), relatively well
diversified credit portfolios, statutory restrictions on connected lending, adequate control over
currency and maturity mismatches, etc, which has insulated them from the adverse impact of
financial crisis and contagion. Banks in India have played a significant role in the
development of the Indian economy.

However, with the structural reforms initiated in the real economy from the early 1990s, it
was imperative that a vibrant and competitive financial system should be put in place to
sustain the ongoing process of reforms in the real sector.

The financial sector reforms have provided the necessary platform for the banking sector to
operate on the basis of operational flexibility and functional autonomy, thereby enhancing
efficiency, productivity and profitability. The reforms also brought about structural changes
in the financial sector and succeeded in easing external constraints on its operation,
introducing transparency in reporting procedures, restructuring and recapitalizing banks and
enhancing the competitive element in the market through the entry of new banks. The
ongoing revolution in information and communication technology has, however, largely
bypassed the Indian banking system given the low initial level of automation. The
competitive environment created by financial sector reforms has nonetheless compelled the
banks to gradually adopt modern technology, albeit to a limited extent, to maintain their
market share.

The impact of the entry of foreign banks on domestic banks is likely to depend on various
factors such as the structure, strength and competitiveness of domestic banks, the share of
foreign banks, and the regulatory/supervisory framework. While the entry of foreign banks
could definitely improve the competitive environment, they are not likely to weaken domestic
banks. With better technology and expertise in offering specialized banking products such as
derivatives, advisory services, trade finance, etc, the entry of foreign banks can enhance
healthy competition and has a positive spillover effect on the domestic banks. The domestic
banks would be under peer pressure to improve operational efficiency. It needs, however, to
be recognized that the banking system in India is quite competitive with the presence of
public, private and foreign banks.

Thus, the major forces for change in the Indian context have been the following:

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       consistent and strong regulatory and supervisory framework;
       structural reforms in the real and financial sectors;
       commitment to adopt and refine regulatory and supervisory standards on a par with
        international best practices; and
       competition from foreign banks and new-generation private sector banks



Privatization of state banks

The optimal size of a bank depends on several factors and differs between countries
depending on the level of economic development, the number and diversity of financial
institutions/instruments, the competitive situation in the market, etc. Looking at the typical
Indian situation, the big banks operating in international markets have to coexist with banks
operating only at the national level, regional rural banks and cooperative banks, which will
induce the necessary competition in the market. Most of the state banks have a strong
national presence and are catering to the needs of various segments of the economy. We do
not expect to split the state banks into smaller entities even after the gradual disinvestment of
government equity in them. Rather, there is a possibility of consolidation for synergizing
business/regional strengths, and efforts in this area may be board-driven with the functional
autonomy that will emerge as a result of such disinvestment.

Issues in bank’s mergers with non-banks

It has been our endeavor to preserve the integrity and identity of banks. The activities that the
banks and their subsidiaries can undertake are restrictive, to ensure that the interests of
existing and future depositors are fully protected. Banks are also not allowed to undertake
trading in commodities. In pursuit of these objectives, the merger of a bank with a non-bank
is generally not favored. However, the merger of a non-bank financial company with a bank
is allowed subject to the prior approval of the Reserve Bank of India and compliance with all
the regulatory and supervisory standards applicable to banks. The issues that may arise in
such mergers would be the bank’s ability to comply with statutory and regulatory
requirements in respect of liabilities and assets taken over by it from the non-bank.

Mechanism for preserving competition

There is no separate agency/mechanism for preserving competition in the banking sector.
Promoting competition is, however, one of the key objectives of financial sector reforms. The
entry of new private sector and foreign banks and introduction of new products and
technology and operational freedom to banks have ensured a competitive environment in the
financial market.

Competition from foreign banks

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While entry of foreign banks is bound to affect the overall competitive situation in the
market, much depends on the policy of the sovereign in regard to their entry/expansion, the
existing share of domestic banks, etc. One of the main thrusts of the banking sector reforms
in India has been to introduce more competition in the banking industry. With regard to
mergers, only very few foreign banks operating in India have gone through the process of
global mergers. The impact of megamergers taking place at the global level on the
competitive position of the Indian banking system has been minor, in view of foreign bank’s
limited share in the financial system. At the same time, foreign banks have the potential, even
without megamergers, to improve their market share, given their use of sophisticated
technology and capability of introducing innovative products.

Other competititors which affect banking sector in some way are:
    Post offices
    Mutual fund
    Share market
    Insurance
    Money lenders
    Family and Friends




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Labour Conditions

Human Resources Management

In the recent past the human resource Policies in banks were mainly guided by the concept of
permanent employment and its necessary concomitants of creating career paths, terminal
benefits, etc. for the employees. In today’s fast-changing world of employee mobility both
horizontally and vertically and value systems, the public sector banks need to hire the right
talent at market related compensation and to shed surplus manpower/staff. Thus many banks
are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS are
going to change the nature of workforce with many senior and experienced persons opting for
it. The key elements that shall provide a competitive edge to banking sector will not be
physical assets but knowledge assets and information. Therefore, banks must understand how
to retain knowledge based employees and prevent them to migrating to some other
organization. Banks must believe in people, customer orientation, and continuous
improvement of excellence. Therefore it becomes necessary for banks to encourage all
employees to take risks and work towards continuous improvements and breakthroughs.

Successful banks overcoming the challenges will be those that harness technology in a
customer friendly yet cost effective way. This requires enormous internal and external
management and the crux of the solution lies in blending human resources with information
technology. In the days to come, banks are expected to play a very useful role in the
economic development and the emerging market will provide ample business opportunities to
harness. Human Resources Management is assuming to be of greater importance. As banking
in India will become more and more knowledge supported, human capital will emerge as the
finest assets of the banking system. Ultimately banking is people and not just figures.

Important Aspects of the Human Resource in Banking Industry

Some of the general issues that have concerned unions and employees, especially women, in
the recent times are:

Increase in workloads - New technology could lessen the repetitive and heavy nature of
certain operations. However, most employees in the insurance and banking industry,
especially in the foreign banks, have experienced serious strain and heavy work-loads.
According to an employee working in the cash department of the Citibank,

“Before computerization we used to do 30-40 cash entries per day; now we have to do more
than 100. There is a greater pressure of work more work and more responsibility”




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Pressure for flexibility -Over the last decade and a half, management has consistently sought
to have flexible manning levels. They have argued that they need operational flexibility in
order to respond quickly to changes in the market, to introduce technological innovations,
and to deal with fluctuations in the flow of work. This, they say, can be achieved by
employing a core of secure, permanent, multiskilled, full-time employees and a 'periphery' of
marginal, generally single-skilled workers who may be employed part-time or temporarily,
and directly or indirectly, in a variety of 'new' ways.

Changes in job content - Changes in work methods caused by the introduction of
computerization affect the content of work as well as the skills needed by employees. The
direction of changes is, however, not uniform. Two divergent tendencies can be observed. In
routine transactions, certain skills of a mechanical nature, which nevertheless require a
measure of mental effort and concentration, are no longer required or are needed less. The
skills replacing them are equally mechanical but call for less mental effort. The level of skills
required for the performance of routine transactions therefore actually falls, although the
degree of attention and concentration required will be just as high or even higher. In contrast,
in the area of customer services, computerization offers potential for an increase in both the
necessary range and level of skills, for example, searching for, extracting and assimilating
relevant information in response to a request. Product innovations have generally led to an
increase in the importance of formal skills. The informal skills, learned on the job that
characterized women's work are not seen as important. The professional and technical jobs
increase in number and importance, and formal theoretical knowledge is becoming more
important for employees in the banking sector (Tremblay, 1991)

Increase in the proportion of 'non-bargainable' staff- Control over the workforce provides
the basis for controlling production processes, output levels, and scheduling. Over the years,
this control has been loosened as unions have come to play a role in areas such as work
intensity, output levels, health and safety, which were and still are considered to be
'management prerogatives'. One of the strategies available to wrest control back is to weaken
unions, both numerically and in terms of the functions which the unionized workforce
performs. This is one reason behind the dramatic and continuous increase in the non-
bargainable category of workers, as compared to unionised workers. This casualization
process has occurred in the banking and insurance industry as well as in manufacturing. In
almost every industry in India, computer programmers are in the non-bargainable category.
Computer programmers are usually in a position to anticipate changes and may use their
knowledge to keep other workers and unions informed.

Health and safety conditions The introduction of new technology has also created a range of
new hazards for the workers. The development of new materials, processes and substances,
without adequate information being made available about their impact, may be creating
problems which will not be perceived for many years. Increases in the scale and pace of
production have contributed towards stress, especially where there is also inadequate support
or training or an unfair distribution of workloads.


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Some specific health and safety problems have been shown to arise from the introduction of
computer-based equipment. Visual Display Units (VDUs) have been known to cause a
number of health problems, especially if operated continuously for a long time. 'Video blues',
eye problems, musculoskeletal problems, painful conditions such as tenosynovitis, varicose
veins, ulcers, nausea, headaches, and skin diseases as well as reproductive problems such as
miscarriages, stillbirths, birth defects, infertility, menstrual problems and low sperm counts
have been very extensively documented (Labour Research Department, 1985). However,
none of the bank employees had been given any health training.

Women Workforce in the Banking Sector

There has been a marked increase in women's employment in the financial sector since the 1950s, in
both public sector companies and private foreign-controlled banks. The increase has been most
marked in metropolitan cities. By the mid-1960s the number of women entering the banks increased
significantly, intensifying in the 1970s end early 1980s. However, the general pattern of women’s
employment in this sector has shown that there has been a sort of persistent invisible glass ceiling
against women acquiring the top management positions in banking. A source from Citibank points
out that in 1970, women comprised only 5% of the bank’s total workforce. But by the
1990’s, women occupied a majority of clerical and computer programming jobs at Citibank. The
Hong Kong and Shanghai Banking Corporation (HSBC) India, also encourages a high recruitment
rate for women. Sources say that the bank believes women tend to put in greater effort in their work,
and many times, are better qualified to perform the job than their men counterparts. Fortune
magazine in 2005 ranked HSBC among the top 50 employers for womenand minorities worldwide.

Women employees organizing The interests of women employees have been expressed in different
ways. In the early 1980s the Women's Wing of the All India Conference of Bank Officers'
Organizations (AICOBOO), open to women officers only, was formed. However the issues that
concern them relate to all women employees. The discrimination experienced by women working in
banks is mainly in terms of the lack of infrastructural facilities, the transfer policy, and assumptions
that women would not be interested in training or in promotions. The Women's Wing of the
AICOBOO has been taking up these issues systematically. . The unions in the LIC have begun to
organize women-only meetings and workshops. The Insurance Employees Association decided in
1991 to organize women employees more effectively, as the number of women employees was
increasing day by day, with over 75 per cent of the new recruits being women. The association has
demanded crèche facilities, special leave and better working conditions for women, and the removal
of hidden discrimination.

Working conditions of the banking industry

The average workweek for nonsupervisory workers in banking was 35.9 hours in 2002. Supervisory
and managerial employees, however, usually work substantially longer hours. Twelve percent of
employees in 2002, mostly tellers, worked part-time.

Working conditions also vary according to where the employee works. Employees in a typical branch
work weekdays, some evenings if the bank is open late, and Saturday mornings. Hours may be longer
for workers in bank branches located in grocery stores and shopping malls, which are open most
evenings and weekends. Branch office jobs, particularly teller positions, require continual

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communication with customers, repetitive tasks, and a high level of attention to security. Tellers also
must stand for long periods in a confined space.

To improve customer service and provide greater access to bank personnel, banks are establishing
centralized phone centers, staffed mainly by customer service representatives. Employees of phone
centers spend most of their time answering phone calls from customers and must be available to work
evening and weekend shifts .Administrative support employees may work in large processing
facilities, in the banks' headquarters, or in other administrative offices. Most support staff work a
standard 40-hour week; some may work overtime. Those support staff located in the processing
facilities may work evening shifts.

Commercial and mortgage loan officers often work out of the office, visiting clients, checking out
loan applications, and soliciting new business. Loan officers may be required to travel if a client is out
of town, or to work evenings if that is the only time at which a client can meet. Financial service sales
representatives also may visit clients in the evenings and on weekends to go over the client's financial
needs.

The remaining employees located primarily at the headquarters or other administrative offices usually
work in comfortable surroundings and put in a standard workweek. In general, banks are relatively
safe places to work. In 2002, cases of work-related injury and illness averaged 1.5 per 100 full-time
workers, among the lowest in the private sector, where the rate was 5.3.

Employment in Banking Industry

    With a steady growth in consumer banking sector, India Banking Jobs are emerging as
    the most sought after by the job seekers. Indian banking industry not only facilitates the
    community needs but also triggers economic expansion by financing infrastructure and
    other developments. Banking employment is projected to grow more slowly than average
    as consolidation and automation make banks more efficient .Office and administrative
    support workers constitute nearly 7 out of 10 jobs; tellers account for more than1 out of 4
    jobs .Employment of tellers will increase more slowly than average, but job openings
    should be plentiful because the occupation is large and many tellers leave their jobs every
    year and must be replaced .Employment growth is expected in management and
    professional jobs, as well as for customer service representatives and securities and
    financial services sales representatives. Jobs available: Profiles of financial managers, bill
    and account collectors, book keeping and auditing clerks, financial service
    representatives, loan officers, bank tellers, etc. are available in this kind of banking.
    Banking jobs in India have been growing manifold in spite of the global economic
    meltdown. Experts believe that jobs in banking are set to increase in next two years, they
    anticipate the need of almost 50, 000 more employees in this sector .Analytical skills,
    communication excellence, understanding client’s needs, operations management, etc. are
    some of the qualities required to begin a career in banking.

Current Jobs In Banks 2010



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Name of            Designation
         Vacancies             Eligibility
the Bank           s

                                          Age Group - 18yrs to 28yrs
                                          Minimum 60% marks in graduation and higher
Syndicat              Probationary     secondary
         1000
e Bank                Clerks              Excellent knowledge of English and vernacular
                                          Basic knowledge of computers

                                          Age Group - 18yrs to 28yrs
Aryavart              40 Officials        Graduate from an affiliated university
Gramya                &         90        Should be proficient in English and local languages
         130
Bank                  Probationary        Must have a sound knowledge in MS office internet
(AGB)                 Clerks           and networking.

                                           Age Group - 21 - 30yrs
Central                                    Graduate from an affiliated university with
                      Probationary     minimum 55% of marks
Bank of 500
                      Officers             Diploma in computer applications from a renowned
India
                                       training institute

                      Team
                      Leader,
                      Service             Varies as per their designations
          Various     Support             For detailed information Visit:
HDFC
          designation Managers,           http://www.hdfcbank.com/aboutus/careers/career.ht
Bank
          s           Sales            m
                      Manager,
                      Branch
                      Heads, etc




24 | P a g e
Financial and Financing Issues of a Bank


Bank Liquidity
Liquidity for a bank means the ability to meet its financial obligations as they come due.
Bank lending finances investments in relatively illiquid assets, but it fund its loans with
mostly short term liabilities. Thus one of the main challenges to a bank is ensuring its own
liquidity under all reasonable conditions.

As per the latest regulations, as on July 2010, the Repo rate is increased by 0.25 percentage
points and is currently at 5.75% and Reverse Repo Rate is increased by 50 basis points and is
currently at 4.5%. These rates have been increased to control the inflation in the Indian
Economy. The increase in Repo Rates will make the availability of cash to the commercial
banks expensive and hence they will be left with less liquidity. In turn, these banks , having
low and expensive liquid assets, will be forced to lend to the customers at higher lending
rates. The customers in turn will borrow less and the money supply in the economy will be
reduced, thus reducing Inflation.

Asset Management Banking
Commercial banks differ widely in how they manage liquidity. A small bank derives its
funds primarily from customer deposits, normally a fairly stable source in the aggregate. Its
assets are mostly loans to small firms and households, and it usually has more deposits than it
can find creditworthy borrowers for. Excess funds are typically invested in assets that will
provide it with liquidity such as Fed funds loaned and government securities. The holding of
assets that can readily be turned into cash when needed, is known as asset management
banking.

Liability Management Banking
In contrast, large banks generally lack sufficient deposits to fund their main business --
dealing with large companies, governments, other financial institutions, and wealthy
individuals. Most borrow the funds they need from other major lenders in the form of short
term liabilities which must be continually rolled over. This is known as liability
management, a much riskier method than asset management. A small bank will lose potential
income if gets its asset management wrong. A large bank that gets its liability management
wrong may fail.

Liability Managent Banking for meeting the working capital requirements must be used
judiciously as it is highly risky strategy. The Indian Banks, being conservative by nature, use
liability management with caution .


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Key to Liability Management
The key to liability management is always being able to borrow. Therefore a bank's most
vital asset is its creditworthiness. If there is any doubt about its credit, lenders can easily
switch to another bank. The rate a bank must pay to borrow will go up rapidly with the
slightest suspicion of trouble. If there is serious doubt, it will be unable to borrow at any rate,
and will go under. In recent years, large banks have been making increasing use of asset
management in order to enhance liquidity, holding a larger part of their assets as securities as
well as securitizing their loans to recycle borrowed funds.

The credit worthiness of banks is assessed and frequently revised by Credit Rating agencies
like ICRA and CRISIL.

Bank Runs (A situation of bad liquidity position of the bank)
A bank run is an overwhelming demand for cash by a bank's depositors. With the advent of
deposit insurance, bank runs by small depositors are largely a thing of the past. Insurance is
limited to $100,000 per deposit, which provides complete coverage to about 99% of all
depositors. But it covers only about three-fourths of the total amount of deposits because
many accounts far exceed the insurance limits.

A large depositor assumes a risk and needs to know something about the bank's own balance
sheet. However a healthy balance sheet does not eliminate all risk. Even if the depositor
knows the bank has adequate liquidity, others may not. Large depositors must therefore be
concerned about what others are likely to believe. A rumor about a bank, even though
unfounded, can trigger a run that causes a solvent bank to fail.

Bank Capital
A bank's capital is equal to its assets minus its liabilities. It is the margin by which its
creditors would be covered if assets were liquidated and its liabilities paid off. A measure of
a bank's financial health is its capital/asset ratio, which is required to be above a prescribed
minimum.Many banks raise capital by the way of issuing IPOs in the stock market.
However, the funds raised by the banks through equity are much less than those which are
there in the bank by the way of Deposits of the customers.

The minimum capital is specified as a percentage of the risk-weighted assets of the bank.
The following table shows the weight assigned to each type of asset.



          Asset                                              Risk Weight

          Cash and equivalents                               0

          Government securities                              0


26 | P a g e
          Interbank loans                                    0.2

          Mortgage loans                                     0.5

          Ordinary loans                                     1.0

          Standby letters of credit                          1.0



The BIS rules set requirements on two categories of capital, Tier 1 capital and Total capital:

       Tier 1 capital is the book value of its stock plus retained earnings. Tier 2 capital is
        loan-loss reserves plus subordinated debt. Total capital is the sum of Tier 1 and Tier 2
        capital.
       Tier 1 capital must be at least 4% of total risk-weighted assets. Total capital must be
        at least 8% of total risk-weighted assets.

Subordinated debt is long term debt that, in case of insolvency, is paid off only after
depositors and other creditors have been paid. Thus it can be used like equity to provide
those creditors some protection against insolvency.

Leverage Requirement
The leverage requirement on banks is based on the unweighted sum of all balance sheet
assets. Off-balance sheet assets such as standby letters of credit are not counted. The
minimum allowable ratio of Tier 1 capital to total assets is 3%. Bank regulators can increase
that to as much as 6% depending on the quality of a bank’s assets. No leverage requirement
is specified for total capital.

Meeting the New Standards
If a bank is having difficulty meeting the BIS capital ratio requirements, there are a number
of ways for it to increase the ratio. If it is publicly traded, it can issue new stock or sell more
subordinated debt. However that may be costly if the bank is in a weak position. Small
banks generally do not have the option of selling new stock since most are not publicly
traded.

If the bank cannot increase its equity, it can reduce its assets to improve the capital ratio.
However shrinking the balance sheet is not attractive because it hurts profitability. Another
option is to seek a merger with a stronger bank.

Asset-Liability Management
Active management of a bank's balance sheet is to maintain a mix of loans and deposits
consistent with its goals for long-term growth and risk management. Banks, in the normal
course of business, assume financial risk by making loans at interest rates that differ from

27 | P a g e
rates paid on deposits. Deposits often have shorter maturities than loans and adjust to current
market rates faster than loans. The result is a balance sheet mismatch between assets (loans)
and liabilities (deposits).

The function of asset-liability management is to measure and control three levels of financial
risk: interest rate risk (the pricing difference between loans and deposits), credit risk (the
probability of default), and liquidity risk (occurring when loans and deposits have different
maturities).

A primary objective in asset-liability management is managing Net Interest Margin (NIM) ,
that is, the net difference between interest earning assets (loans) and interest paying liabilities
(deposits) to produce consistent growth in the loan portfolio and shareholder earnings,
regardless of short-term movement in interest rates. The dollar difference between assets
(loans) maturing or repricing and liabilities (deposits) is known as the rate
sensitivity gap (or maturity gap). Banks attempt to manage this asset-liability gap by pricing
some of their loans at variable interest rates.

A more precise measure of interest rate risk is duration , which measures the impact of
changes in interest rates on the expected maturities of both assets and liabilities. In essence,
duration takes the gap report data and converts that information into present-value worth of
deposits and loans, which is more meaningful in estimating maturities and the probability that
either assets or liabilities will reprice during the period under review. Besides financial
institutions, nonfinancial companies also employ asset-liability management, mainly through
the use of derivative contracts to minimize their exposures on the liability side of the balance
sheet.

Mergers And Acquisitions




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Future Landscape of Indian Banking Industry

Four trends change the banking industry world over

1) Consolidation of players through mergers and acquisitions

2) Globalisation of operations

3) Development of new technology

4) Universalization of banking

       Mergers and acquisitions would gather momentum as managements will strive to
        meet the expectations of stakeholders. This could see the emergence of 4-5 world
        class Indian Banks. As Banks seek niche areas, we could see emergence of some
        national banks of global scale and a number of regional players.
       With increased competition in the banking Industry, the net interest margin of banks
        has come down over the last one decade. Liberalization with Globalization will see
        the spreads narrowing further to 1-1.5% as in the case of banks operating in
        developed countries.
       Technology as an enabler is separately discussed in the report. It would not be out of
        place, however, to state that most of the changes in the landscape of financial sector
        discussed above would be technology driven. In the ultimate analysis, successful
        institutions will be those which continue to leverage the advancements in technology
        in re-engineering processes and delivery modes and offering state-of-the-art products
        and services providing complete financial solutions for different types of customers.
       International trade is an area where India’s presence is expected to show appreciable
        increase. Presently, Indian share in the global trade is just about 0.8% .The long term
        projections for growth in international trade is placed at an average of 6% per annum.
        With the growth in IT sector and other IT Enabled Services, there is tremendous
        potential for business opportunities .Keeping in view the GDP growth forecast under
        India Vision 2020, Indian exports can be expected to grow at a sustainable rate of
        15% per annum in the period ending with 2010 .This again will offer enormous scope
        to Banks in India to increase their forex business and international presence
        .Globalization would provide opportunities for Indian corporate entities to expand
        their business in other countries .Banks in India wanting to increase their international
        presence could naturally be expected to follow these corporates and other trade flows
        in and out of India

The traditional banking functions would give way to a system geared to meet all the financial
needs of the customer. We could see emergence of highly varied financial products, which
are tailored to meet specific needs of the customers in the retail as well as corporate

30 | P a g e
segments. The advent of new technologies could see the emergence of new financial players
doing financial intermediation.

Retail lending will receive greater focus. Banks would compete with one another to provide
full range of financial services to this segment. Banks would use multiple delivery channels
to suit the requirements and tastes of customers .While some customers might value
relationship banking (conventional branch banking), others might prefer convenience banking
(e-banking).

Structure and ownership pattern would undergo changes. There would be greater presence of
international players in the Indian financial system. Similarly, some of the Indian banks
would become global players. Government is taking steps to reduce its holdings in Public
sector banks to 33%. However the indications are that their PSB character may still be
retained. If the process of consolidation through mergers and acquisitions gains momentum,
we could see the emergence of a few large Indian banks with international character. There
could be some large national banks and several local level banks.

Product innovation and process re-engineering
As banks strive to provide value added services to customers, the market will see the
emergence of strong investment and merchant banking entities. New products on the
liabilities side such as forex linked deposits, investment-linked deposits, etc. are likely to be
introduced, as investors with varied risk profiles will look for better yields. There will be
more and more of tie-ups between banks, corporate clients and their retail outlets to share a
common platform to shore up revenue through increased volumes.

Banks will increasingly act as risk managers to corporate and other entities by offering a
variety of risk management products like options, swaps and other aspects of financial
management in a multi currency scenario. Banks will play an active role in the development
of derivative products and will offer a variety of hedge products to the corporate sector and
other investors. For example, Derivatives in emerging futures market for commodities
would be an area offering opportunities for banks. As the integration of markets takes place
internationally, sophistication in trading and specialized exchanges for commodities will
expand.

Bancassurance is catching up and Banks / Financial Institutions have started entering
insurance business. From mere offering of insurance products through network of bank
branches, the business is likely to expand through self-designed insurance products after
necessary legislative changes. This could lead to a spurt in fee-based income of the banks.

The banking system is expected to reorient its approach to rural lending. “Going Rural” could
be the new market mantra. Rural market comprises 74% of the population, 41% of Middle
class and 58% of disposable income. Consumer growth is taking place at a fast pace in 17113
villages with a population of more than 5000 .Of these, 9989 villages are in 7 States, namely
Andhra Pradesh, Bihar, Kerala, Maharashtra, Tamilnadu ,Uttar Pradesh and West Bengal.


31 | P a g e
Banks’ approach to the rural lending will be guided mainly by commercial considerations in
future.

Similarly, Banks will look analytically into various processes and practices as these exist
today and may make appropriate changes therein to cut costs and delays. Outsourcing and
adoption of BPOs will become more and more relevant, especially when Banks go in for
larger volumes of retail business.




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