Central Bank and Monetary Authority

Reserve Bank of India

Apex Banking Institutions

IDBI NABARD EXIM BANK IIBI NATIONAL HOUSING BANK

SIDBIBanking Institutions

Commercial Banks Regional Rural Banks Co-operative Banks

Public Sector Private Sector

State Bank Group

Nationalised Banks

Subsidiary Companies

SBI Subsidiary Banks

SubsidiaryCompanies

Indian Foreign

Old Banks

NewBanks

Local AreaBanks

State Co-operativeBanks

Central & DistrictCo-operative Banks

Primary Credit Societies

Development Banks

Industrial Development Banks Land Development Banks

All India

IFCI ICICI

Subsidiary Companies

State Level

SFC SIDC

State Level Land Development Banks

Primary Land Development Banks

-0.5

0

0.5

1

1.5

2

1995-96 1996-97 1997-98 1998-99 1999-2000

TRENDS IN BANKS PROFITABILITY ( NET PROFITS AS % OF TOTAL ASSETS)

Public Sector Banks Old Private Sector BanksNew Private Sector Banks Foreign BanksAll Scheduled Commercial Banks

0

10

20

30

40

50

1995-96 1996-97 1997-98 1998-99 1999-2000

SHARE OF PRIORITY SECTOR ADVANCES (IN %)

Public Sector Banks Private Sector BanksForeign Banks

0

5

10

15

20

25

1995-96 1996-97 1997-98 1998-99 1999-2000

SHARE OF WAGES IN EXPENDITURE (IN %)

Public Sector Banks Old Private Sector BanksNew Private Sector Banks Foreign BanksAll Scheduled Commercial Banks

0

1

2

3

4

5

1995-96 1996-97 1997-98 1998-99 1999-2000

INTEREST RATE SPREAD % OF TOTAL ASSETS

Public Sector Banks Old Private Sector BanksNew Private Sector Banks Foreign BanksAll Scheduled Commercial Banks

00.51

1.52

2.53

3.54

1995-96 1996-97 1997-98 1998-99 1999-2000

INTERMEDIATION COSTS (IN %)

Public Sector Banks Old Private Sector BanksNew Private Sector Banks Foreign BanksSCBs

CONCLUDING OBSERVATIONS

Challenge to the Public Sector Banks to Retain their shareStiff Competition by New Private Sector Banks to the Foreign BanksFocus primarily on ProfitabilityInterest Rate Spread has declined in case of Public & Private Sector BanksPublic Sector has brought a reduction in the Wage Component

OFF-BALANCE SHEET ACTIVITIES

Loan CommitmentsGuaranteesSwap & Hedging TransactionsInvestment Banking Activities

RISKS OF OBS ACTIVITIES

Operational risksFunding RisksPosition RisksCredit Risks

ROUND UP

SBI edges up position NABARD plans to enter retail banking Commercial Banks beef up Tier- II Capital NPA’s of 27 PSBs Rise

GROSS NPA's OF PUBLIC SECTOR BANKS % OF GROSS ADVANCES

12.4

24.8

0

5

10

15

20

25

30

1993 1994 1995 1996 1997 1998 1999 2000 2001

NPA's

1991-92 2000-01

Competition

Income Recognition & Capital Adequacy Norms

Prudential Regulations

Interest Deregulation

Transparency in Balance Sheets

Changing Mindsets

Recourse to Market

Provisions

Risk Management

Asset / Liability Management

New Content in Corporate Planning

LIKELY CHALLENGES FACING BANKS

BANKING SECTORIntroduction to Banking

BANKING (% PENETRATION )

PUBLIC SECTOR BANK

70%

PRIVATE BANK 22 %

FOREIGN BANK8%

TRADITIONAL BANKING SECTOR

• Highly segmented market• Limited competition• Less alternative products offered• Minimal use of technology• Preponderance of Brick & Mortar• Controlled foreign exchange regime• Highly regulated financial sector

REFORM MEASURES

Direct access to Capital MarketBetter transparency through disclosurePrudential accounting normsDeregulation of Interest Rate

• Bank Rate lowered by 50 basis point from 7% to 6.5%• CRR slashed in two stages from 7.5% to 5.5% ( Reduction by 200 basis points )

• Interest on CRR Balances with RBI raised to 6.5% from 6%

The result

Rs 8000 crore unlocks

FALL IN CRR

MORE MONEY

WITH BANKS TO

LEND

LENDING ACTIVITY

INVESTMENTOUTPUT

ECONOMIC GROWTH

LOOPHOLES

• Excess staff in PSB• Low technology penetration• High NPA’s• Less No. of products under one roof• Large No. of unprofitable branches

PARADIGM SHIFT • One stop service to customer

• Technology & I.T. penetration

• From “ Brick & Mortar ” to

“ Click & Mortar ”

• Emerging trend of Universal Banking

UNIVERSAL BANKING

UNIVERSAL BANK

TERM LENDING WORKING CAPITAL

MORTGAGE

INSURANCE CAPITAL MARKET

LEADING BANKSPrivate SectorIndian Banks

ICICI Bank HDFC Bank Indusind Bank GTB UTI Bank Centurion Bank Vyasa Bank Federal Bank

etc….

Private Sector Foreign Banks

Citibank Stanchart HSBC Bank of Baroda ABN Amro AM-EX

etc….

TECHNOLOGY IMPACT

• Save in time• Save in cost• Save in Paper work• Increase in efficiency• Increase in service• Increase in transparency

Role of Commercial Banks

• Financial Interface• Facilitating Payments Mechanism• Providing Financial Services• Other Misc. Services

CHALLENGES• Financial Disintermediation• Competitions from Mutual Funds• Deregulation of Interest Rate• Declining Spread• Burden of NPA’s• Issuing Capital Adequacy Norms• Asset / Liability Management• Technology & Computerisation• Disclosure & Financial Transparency• VRS• Increased Accountability

STRATEGIES• Retail Banking Initiatives• Multiple Delivery Channels• “ Anytime & Anywhere Banking ”• Focus on fee based income• Better Asset / Liability Management• Proper Risk Management• Supervision of Loans & Check on NPA’s• Financial Services Supermarket• Customer Orientation Approach• Better Corporate Governance