Central Bank and Monetary Authority Reserve Bank of India Apex Banking Institutions IDBINABARDEXIM BANKIIBI NATIONAL HOUSING BANK SIDBI Banking Institutions Commercial Banks Regional Rural BanksCo-operative Banks Public Sector Private Sector State Bank Group Nationalised Banks Subsidiary Companies SBISubsidiary Banks Subsidiary Companies IndianForeign Old Banks New Banks Local Area Banks State Co-operative Banks Central & District Co-operative Banks Primary Credit Societies Development Banks Industrial Development BanksLand Development Banks All India IFCIICICI Subsidiary Companies State Level SFCSIDC State Level Land Development Banks Primary Land Development Banks

CONCLUDING OBSERVATIONS Challenge to the Public Sector Banks to Retain their share Stiff Competition by New Private Sector Banks to the Foreign Banks Focus primarily on Profitability Interest Rate Spread has declined in case of Public & Private Sector Banks Public Sector has brought a reduction in the Wage Component

OFF-BALANCE SHEET ACTIVITIES Loan Commitments Guarantees Swap & Hedging Transactions Investment Banking Activities

RISKS OF OBS ACTIVITIES Operational risks Funding Risks Position Risks Credit 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

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 SECTOR Introduction to Banking BANKING (% PENETRATION ) PUBLIC SECTOR BANK 70% PRIVATE BANK 22 % FOREIGN BANK 8%

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 Market  Better transparency through disclosure  Prudential accounting norms  Deregulation 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 INVESTMENT OUTPUT 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 INSURANCECAPITAL MARKET

LEADING BANKS Private Sector Indian 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