Vision
of Banks in India
The
banking scenario in India has already gained all the momentum, with the
domestic and international banks gathering pace. The focus of all banks in
India has shifted their approach to 'cost', determined by revenue minus profit.
This means that all the resources should be used efficiently to better the
productivity and ensure a win-win situation. To survive in the long run, it is
essential to focus on cost saving. Previously, banks focused on the 'revenue'
model which is equal to cost plus profit. Post the banking reforms, banks
shifted their approach to the 'profit' model, which meant that banks aimed at
higher profit maximization.
Focus
of banks in India
The
banking industry is slated for growth in future with a more qualitative rather
than quantitative approach. The total assets of all scheduled commercial banks
by end-March 2010 is projected to touch Rs 40,90,000 crore. This is going to
comprise around 65% of GDP at current market prices as compared to 67% in
2002-03. The bank's assets are estimated to grow at an annual composite rate of
growth of 13.4% during the rest of the decade as against 16.7% between 1994-95
and 2002-03.
Barring the asset side, on the liability perspective, there will be huge additions to the capital base and reserves. People will rely more on borrowed funds, pace of deposit growth slowing down side by side. However, advances and investments would not see a healthy growth rate.
Consolidation
of Banks in India
Would
the banking industry in India get opened up for more international competition?
India would see a large number of global banks controlling huge stakes of the
banking entities in the country. The overseas banking units would bring along
with it capital, technology, and management skills. This would lead to higher competition
in the banking frontier and ensure greater efficiency. The FDI norms in the
banking sector would give more leverage to the Indian banks.
Thus, a consolidation phase in the banking industry in India is expected in the near future with mergers and acquisitions gathering more pace. One might also see mergers between public sector banks or public sector banks and private banks. Credit cards, insurance are the next best strategic places where alliances can be formed.
Future
challenges of Banks in India
The
Indian banks are hopeful of becoming a global brand as they are the major
source of financial sector revenue and profit growth. The financial services
penetration in India continues to be healthy, thus the banking industry is also
not far behind. As a result of this, the profit for the Indian banking industry
will surely surge ahead. The profit pool of the Indian banking industry is
probable to augment from US$ 4.8 billion in 2005 to US$ 20 billion in 2010 and
further to US$ 40 billion by 2015. This growth and expansion pace would be
driven by the chunk of middle class population. The increase in the number of
private banks, the domestic credit market of India is estimated to grow from
US$ 0.4 trillion in 2004 to US$ 23 trillion by 2050. Third largest banking hub
of the globe by 2040 - is that vision too far away?