Financial Sector reforms initiated in the country as a part of the economic reforms since the year 1991, has brought about revolution in the structure of banking environment. While deregulation has opened up new opportunities for banks, liberalization has intensified competition in the banking industry by opening the market to new foreign and private sector banks. Declining interest rates and reduced lending margins have thrown up new challenges to banks, particularly public sector banks .Banks
need to equip themselves sufficiently to operate in such a competitive environment .
GLOBAL CHALLENGES IN BANKING
1. Enhancement of customer service.
2. Innovations in technology.
3. Improvement of risk management systems.
4. Diversifying products.
Globalisation challenges are not restricted only to global banks. Banks in India also need to face them. Overcoming these challenges makes them more competitive and will also equip them to launch themselves as global players.
Globalisation has brought fierce competition from international banks. In order to compete with new entrants effectively commercial banks need to posses strong balance sheets which indicate the real strength of the bank. The entry of new private sector banks and foreign banks equipped with latest technology and technology -driven product lines have really sensitized the ordinary customers of the banking services to the need for quality in terms of innovative products as well as delivery process These banks are aggressively targeting the retail business and consequently grabbing the market share of public sector banks.
In the future, banking will be driven more of technology and telecommunication systems. Aided by improved telecommunication and technology, Public sector banks have made rapid strides in product innovation and delivery, thereby improving quality of customer service. Technological changes have brought about paradigm shift in the process today’s banking may be redefined as ‘Triple A.’ banking-anytime anywhere, anyhow banking .Internet banking will enable three profit centres, namely treasury, corporate banking and retail banking, to launch new products and provide quality service to a wider customer base.
With the help of innovative information technology, banks are able to reduce the transaction cost and handle a large number of transaction in no time. Now banks can provide customized products easily and customers could access many services through internet by sitting at home. To provide better services to their customers, banks are embracing Customer Relationship Management [CRM] facilitated by the availability of conductive technology. Innovation is technology is also helping banks to cross sell the products of insurance and securities firms, which are swelling their fee-based income in the total income.
Innovative technology not only brings benefits, but risks too. Major impediments and risks associated with the implementation of innovative technology are;
o Cost associated with adoption of new technology might not bring cash flows required to cover that cost.
o Increased capacity due to a new technology could result excess capacity in the financial institution.
o Another problem banks face with implementation of latest technology is integration of existing system with the new one.
o Banks could face cost overrun or cost control problems.
o Innovative technology has brought new risks like daylight overdraft risk
INNOVATIONS IN HOUSING LOANS
Housing loans are one of the products that banks are concentrating more. The booming housing loans market positively affects many industries. So to provide impetus to any economy, booming housing market is vital. Banks benefit from higher security ,low risk weights and reasonable margins.
Globalisation and liberalization are forcing banks to take more risk to compete effectively in the global market place. One of the important risks is compliance risk. It is the risk to comply with laws, rules and standards such as market conduct, treating customers fairly, etc. To mitigate this risk, banks should develop compliance culture in their organization. It is not only the duty of compliance specialists, but banks can also manage compliance risk by putting in place compliance functions that are in consistence with compliance principles.
Liquidity risk arises when banks unable to meet their obligations when they become due. To manage the mismatch of assets and liabilities, banks should analyse the accounting data both on static as well as dynamic basis. Deposits of higher value are the most important item to be monitored regularly, as sudden withdrawal of these deposits might cause liquidity problem for the bank. Also incentives to these deposits in the time of falling interest rates could create strain on liquidity.
INNOVATIONS IN CUSTOMER SERVICES
Satisfied customer is the best guarantee for stability of the organization in the long-run. Banks can satisfy their customers only by providing customised, cost effective and timely services .With the help of technology banks are able to provide plethora of products and services to their customers which suit them. Major services provided by the Indian banks that are of international standards are Any time banking, Anywhere banking, Global ATM and Credit Cards, Internet banking facility etc.
Given the new environment, Indian banks can’t remain unaffected by the changes round and challenges before them. Therefore Indian banks need to restructure themselves. The following practices need to be adopted on urgent basis;
o Greater professionalism.
o Greater emphasis on diversification and sources non interest income.
o Consultancy services.
o Equipping themselves to operate in the deregulated environment.
o Necessary changes in the legal stipulations.
o Cost management.
o Bench marking of service standards to improve productivity and Proficiency.
o A self- regulatory organization to monitor the activities of banking
With the increasing levels of Globalisation Liberalisation, Privatisation and new reforms of the Indian banking sector, competition will intensify further. Therefore, the banks who understand the market dynamics, perceive threats, anticipate volatility, show high degree of professionalism and dynamism in their functioning and respond promptly to the market needs would survive and prosper.