Welcome 2024: Future of India’s Banking Sector Holds Promise

Dr B K Mukhopadhyay

(The author is a Professor of Management and Economics, formerly at IIBM (RBI) Guwahati. He can be contacted at m.bibhas@gmail.com)

India’s banking sector’s current trends reflect departure from traditional practices in a number of ways: auditing is attached more importance [compliance is taken more seriously than before], switching over to the base rate regime, interest rates being revised more frequently in response to changing market situations, and risk management practices being widely understood. The banks are more cautious about customer dealings. Though as a whole, the trends are encouraging, yet regarding the management of assets and liabilities, a lot of things are to be done—the assessments made more specifically, especially keeping in view the newer risk factors, and so also so far as talent retention strategy is concerned [some of India’s small banks are still miserably failing on this score mainly because of a lack of vision, leadership styles, and the like].

Turning Today’s Good Going Into Better Tomorrow

Our players are doing well, with profit levels going up and a stronger hold over the fast-changing market situations. Of course, the best players—SBI, HDFC, and ICICI, among others—should not merely restrict themselves to profit figures but shoulder more responsibility to discharge functions that directly and indirectly push the contributions from this banking sector to the GDP. The renewed emphasis on the MSME sector could invite more entrepreneurs into the field along with the existing players; more transactions in the CD wing are reasonably expected. So the CASA section is expected to ensure sustainability.

On the part of the RBI, the able regulator, responsible steps have been taken over the years, and today’s India’s banking scenario largely owes to the same. Especially because of the initiatives taken, the banking system in India has made substantial progress in addressing all three major types of risks [market, credit, and operational]. Stress testing and capital adequacy practices are now increasingly under scrutiny by regulators around the world, and the banks in India now have to deal with the challenges of rapid and inclusive growth, which, in turn, makes it even more critical for them to ensure that the best available technology is used for risk management.

Still, the need is there to have a close watch on how the public money is utilized for training and development purposes [especially in the training institute, where the role of the leader should come under the scanner—whether the talent retention strategy has been there, whether foreign tours are necessitated or not, whether the physical resources have been fully utilized or sold out, whether RBI Management Audit observations have been duly complied with, how much money is spent for borrowing the faculties from outside vis-à-vis utilization of the internal resources, etc.].

The branch expansion drive, since initiated afresh, is also another area that could help sustain the growth process by extending fresh services to the rapidly growing urban and suburban settlements.

Providing new and improved services vis-à-vis meeting customers’ needs at lower costs that are being followed could help protect deposit growth from moving south. Innovations could exert a considerable competitive impact on other banks.

Since quality has become a commodity, quicker, customer-friendly, environment-backed services hold the key to this score. There of course remains a high possibility of netting more deposits from the public as the economy is moving north steadily, especially when the last central budget emphasised more on investment in infrastructure and rural development, which, in turn, could result in more business activities in all of the regions: metropolitan, big cities, small cities, and semi-urban and rural regions. Much depends, of course, on how the inflationary forces are tackled during this fiscal year.

Business Planning is Continuous and Spontaneous in Nature

Recent evidence suggests that finance is not only pro-growth but also pro-poor, and economies with better developed financial systems experienced faster reductions in income inequality and poverty. For ensuring fast and consistent economic and social development, a well-functioning financial system is an essential pre-requisite, as is the depth, capability, and efficiency of the financial system. Appropriate financial sector policies call for encouraging, on the one hand, competition and providing the right incentives to individuals, and on the other, extending necessary support to foster growth, poverty reduction, and better distributive justice, making full use of the capacities. Improving financial access in a way that most benefits the poor calls for the adoption of a strategy for inclusion that travels well beyond credit for poor households, and as such, it is vital to broaden the focus of attention to improving access for all who remain excluded.

Under the ongoing scenario, especially keeping in view the fast-changing banking scenario where a particular technology is being replaced rapidly by another technology, it is better to take for granted that in the near future there will be intense competition, both intra- and inter-bank [players being government-owned banks, old private sector banks, new private sector banks, and foreign banks], not only at the macro-level but also at the very micro-level.

Naturally, fixation of strategies, continuous upgrading of skills, and making the best use of talent, backed by effective planning techniques that take care of the forthcoming series of happenings and things, pose the biggest challenge. Thus, the future is for them to emerge as top risk managers through optimal utilization of all of the resources—physical, financial, technological, and the most important one—the human resource.

The need is very much there to follow a defensive marketing strategy as well, so that the ageing building does not suffer from unnoticed pilferage. Business boosting does not have a short-cut formula. Reality is something where one has to keep pace with changing needs, thus correcting the strategies that are to be followed. What is more, one particular strategy is not going to necessarily lead to lasting success. As the very term ‘strategy’ is borrowed from military science, the process followed should adhere to the situation warranted.

Again, the merger-amalgamation process must be goal-oriented. The regional rural banks have been merged to form a single entity. Has it solved the problem of non-recovery of loans, profitability, employee productivity, or best utilization of manpower? Simply asking banks to merge does not serve any purpose if the objectives are impractical. There is still a long way to go!

It remains a fact that privatization alone cannot solve the banking sector’s problems. If the public-sector banks continue to show a growth trend, why not encourage them? Better coordination between the players would be beneficial since both sectors have plus and minus points. Synergy enables the banking sector to counter foreign players effectively. When we cannot stop their coming into our land, being one of the WTO members, then why not face them in such a manner exactly as the Japanese counterpart does? [To an average Japanese, the Japanese Bank is the first preference]. Yes. Obviously, the level of customer delight is the key factor.

Time is ripe for implementing achievable, target-oriented strategies so that the banking sector earns better respect from foreign customers as well. Techno-savvy nature is one part of the game. Talent search, competent board members, corporate governance, flexibility in decision-making, updating of knowledge through a continuous training system, borrowing knowledge from the biggies, concentrating on pure banking activities, etc. could definitely enable India’s banking sector to offer a tough fight to its foreign counterpart.

In today’s world, slow and steady are better quickly replaced by fast and consistent.