(Indian Banker Volume VII NO.4 April2012)
“A vision is not a project report or a plan target. It is an articulation of the desired end results in broader terms” - A.P.J.Abdul Kalam
Vision is an act or faculty of seeing.
It is deciding in advance what an organisation wants to achieve in future and
how would it like to be positioned in the economic, social and global arena.
Thus vision is a long term view and a foresight of an organisation where it
wants to be in the near future or distant future. It is not a
forecast or daydreaming or hyperopia but a
statement of aspirations and intentions.It is
assessing facts, opportunities, threats and constraints and thereafter planning
for the future. It enables an organisation in anticipating future challenges
and prepares it well in advance to meet them.
The object behind a vision statement is to achieve higher standards of excellence and level of performance, which was hitherto unattained. Therefore, planning is must for the desired results. Since planning without a clear vision and vision without proper planning is of no use. A good vision statement is the blue print of an organisation which decides the path on which an organisation has to run. It is documenting the aspiration of an organisation and directing employees’ efforts, energies in achieving corporate goals. In fact a vision statement is ‘Self Actualisation’ need of the organisation.
If your
vision is for a decade, plant trees.
If your vision is for a lifetime, plant people.’
As ‘Planning Commission’ prepares vision for the country, similarly industrial sector, service industry like banks and other sectors too prepare their own plan and vision.
1. Basis of Vision for Banks:
Indian banking industry is governed by the policies and priorities of the Government, directives of the Reserve Bank of
o Of the total population of the country 68.84 percentage of people live in rural areas which
include 68.60 percentage of male and 69.08 percentage of female.
Age group of Population
|
Percentage
|
25
|
50
|
26-35
|
15
|
36-65
|
29.5
|
Above 66
|
5.5
|
o
About 50 percent of the population is
below the age of 25 years, 15 percent
of the
population is in the age
bracket of 26 to 35 years 29.5 percentage of the population is in the
age group
of 36 to 65 and 5.5 percentage of population is in the age group of 66 and above.
o Rural Population live in 6,38,588 villages with population ranging between 800 to 5000.
o
Around 75 percent of the population is dependent on
agriculture and allied activities
o Out of around 120 million farmers, small and marginal farmers are 97.7 million (82.1 %)
- An estimated
350-400 million people of the country live below the poverty line.
less than INR 50,000 have a bank account (Urban 34.1% Rural 26.8% Total 28.3%)
o Only 5.2% villages have a bank branch and 46% people do not have a bank account.
- People in the
annual income bracket of less than INR 50,000 are heavily dependent on
money lenders.
- The indebtness of people in the annual
income bracket of less than INR .50,000 is as under;
b. Money lenders 34.9%
c. Other Institutional & Non- Institutional 52.1 %
- For the purpose of census, a person in age limit of seven and above, who can both write and read with understanding in any of the language is considered as a literate in
- Total number of Kisan Credit cards issued by banks was 187 million (as on 31st March, 2010).
o
As per Telecom
Regulatory Authority of India, numbers of Mobile phones were 791.38
million.
o
According to
TRAI, India
billion by
2015. Broadband users will increase to 100 million by 2012.Total number of
subscribers which include both wireless and wired subscribers
are 826.25 millions.
According to the Planning Commission, by 2020:
- The population of
- The
population over 60 years of age will double from 60 to 120 million people
- Only 40 per cent of the population will be engaged in agriculture
as against 60 per cent now.
- Share of agriculture in GDP will be a nominal 6 per cent as against
28 per cent today.
- Exports will constitute 35 per
cent of GDP as against 15 per cent at present.
- The economy will be market
driven, productive and competitive.
- The people of
- The
largest number of new jobs will be created by small and medium enterprises
(SMEs).
- The
number of fixed telephone line services will multiply another seven-fold
in the next 18 years.
- Mobile
telecommunications and the Internet will set the contours of technological
progress over the next two decades.
- Globalisation
will open new markets
- The
population above 65 years of age will increase from 45 to 76 million
persons by 2020.
- During
the next 20 years, the aged population in India will nearly double,
placing much greater demand on the infrastructure of hospitals and nursing
homes, while at the same time shifting the profile of health disorders
from problems of the young to those of the aged.
- The
World Bank estimates that
As per the report of McKinsey Global Institute, income of house holders would rapidly rise due to economic growth.
5. Future Landscape of Indian Banking:
The
age and structure of population affects
a nation's key socio economic issues.On the basis of the
economic scenario, banks and financial institutions are bound to play important
role in the next decade in Indian economy as ‘Finance is the only concrete on which Castles of Vision can be made.’
(a) Rural Development:
With the increase in population, demand for food and agricultural products would shoot up. For meeting the growing demand of food during the next decade food production will have to be increased to 400 million tones per annum, from the reduced availability of land i.e. from 170 million hectares to 100 million hectares that too with the reduced water availability and by using technological inputs.
Rising
productivity and rapid diversification into value-added crops would spur
another ‘Green Revolution’ in Indian agriculture with the active participation
of commercial banks, other financial institutions and NABARD.Though around 64 percent of bank branches are presently in
rural and semi urban areas services of banks are not utilised by most of the
rural folks.
The
National Sample Survey data reveals that, in 2003, out of the 89.3 million
farmer households in the country, 51 percent did not seek credit from either
institutional or non-institutional sources of any kind. Out of the 6,38,588 habitations
in the country, only about 30,000 have a commercial bank branch. Just about 40
per cent of the population across the country has bank accounts. Even where
bank accounts are claimed to have been opened, verification has shown that
these account are dormant. Banks would have to take care of rural masses,
whether willingly, unwillingly or under compulsion. Future of banks lies only
in rural areas.
(b)Financial Inclusion:
As financial access is a necessary condition for sustaining equitable growth, the Reserve Bank of
For
expanding banking activities in under- banked districts of under banked- states
RBI has also changed its branch licencing policy. Domestic scheduled commercial
banks (other than RRBs) are free to open branches in towns and villages with
less than 50,000 populations. Banks have to ensure that at least one-third of
such branch expansion happens in the under banked districts of under banked
states.
With
a view to bring banking at the doorsteps of the rural masses, banks have been
permitted to outsource banking activities and to appoint ‘Business Correspondents
(BCs) and Business Facilitators’ for expanding their outreach in rural areas.
The BCs model ensures a closer relationship between poor people and the
organised financial system. In 2006, RBI permitted banks to use the services of
non-governmental organisations, micro-finance institutions, retired bank
employees, ex-servicemen, retired government employees, and other civil society
organisations as BCs in providing financial and banking services.
RBI has further enlarged the scope of the Business Correspondents by permitting banks to appoint individual
kirana /medical /fair price shop owners, individual Public Call Office (PCO)
operators, agents of Small Savings schemes and insurance companies, individuals
who own petrol pumps, retired teachers and self-help groups linked to banks as BCs.
The BCs are allowed to conduct following banking business as agents of the
banks at places other than the bank premises.
(i) Disbursal of small value credit,
(ii) Recovery of principal / collection of interest
(iii) Collection of small value deposits
(iv)
and
(v) Receipt and delivery of small value remittances/ other payment instruments
To further the agenda of financial inclusion in India, Reserve
Bank (Jan 2006) allowed banks to employ two categories of intermediaries viz
Business Correspondents and Business Facilitators. The correspondents are
permitted to carry out transactions on behalf of the bank as agents. The
Business facilitator refer clients, pursue the clients’ proposal and facilitate
the bank to carry out its transactions, but finally the responsibility of
putting through transactions rest with the bank staff.
In the past banks were duped by cash collectors appointed for collecting deposits or loan installments. Even staff of some of the Regional Rural Banks had got their own Fixed Deposit receipts printed and banks suffered losses. Therefore, banks will have to do the necessary due diligence while appointing Banking Correspondents, as any fraud if committed by ‘banking correspondent’ may not only be a loss to bank’s image and reputation but would shake confidence of rural masses. Bank has to know that reputation once lost, can not be regained and then the whole system would crumble down.
6. Scope
As at 31st March 2010, around 56 percentages of banks branches were in rural and semi-urban areas. This can very well be interpreted that the future of banks are in rural and semi urban areas. Thus, in the next century there is an immense potential in the far-flung areas of our country. Rural and semi urban areas would continue to play important role in the economic development. Therefore, banks and other financial institutions would have to divert more resources to the agricultural and allied sector.
Banks have to increase geographic coverage for increasing access to their services. RBI would give banking licenses to Non Banking Finance Companies and private companies. For the conveniences of illiterate rural masses, banks are also opening new biometric ATMs. The biometric facility will enable user identification with the help of thumb impression or imprint of the palm. This dispenses with the requirement of memorising PIN.
The Reserve Bank has encouraged banks to use IT-enabled financial inclusion by leveraging on the smart cards/mobile technology. BCs of banks are making extensive use of hand held devices/mobile phones to reach banking services to remote villages, and especially for Electronic Benefits Transfer of NREGA wages and social security payments. The next decade would see greater branch expansion in rural and semi urban areas and use of IT solutions for greater banking penetration.
Bank’s approach to rural lending will be guided mainly by commercial considerations in future. Since government is committed to eradicate poverty, banks will either on their own or under government directives or under compulsion would have to divert more funds for achieving these social objectives. As poverty any were, is dangerous to prosperity every were.
For developing rural economy, banks would be financing
units engaged in the manufacture of agricultural equipments and inputs. Banks
would also strengthen forward and back word linkages. Since food habits are
changing fast, many new units of processing, preserving and packaging would
spring up and banks would be there to provide financial assistance to such
units. NABARD and SIDBI would dole out refinance facilities on easier terms to
commercial banks.
7. Stricter Control Regime:
Since banks would be getting more operational freedom due to deregulation, the Reserve Bank would certainly tighten its supervisory and monitoring noose on banks. Risk based supervision and off site supervision will be the key factors of supervision. Many new supervision tools would be introduced. KYC & Anti Money Laundering Norms would be made more stringent. Stringent capital adequacy norms and Prudential Norms would be implemented. Probably the period of 90 days period may be further reduced. Since banking operations are vulnerable and risk prone, an effective system for ‘Management of Operational risk’ would be the need of the day.
Risk management would get utmost importance in near future. Corporate governance will be the benchmark for banks. Commercial banks would be having more stringent examination of the lending decisions taken by the Central Vigilance Commission.
8. Changes that may take place:
To increase revenue, government may introduce stamp duty on cheques / payment instructions issued by corporate. The electronic form of cheques would gradually replace paper form of cheques. Rate of premium on deposit insurance would be linked with the risk factor of a bank. Deposit Insurance would be INR 5 laks (as recommended by Shri M. Damodaran committee) the limit of insured amount in respect of banks with low / least risk factor would be enhanced.
With the
deregulation of savings bank interest competition in banks are bound to arise.
This would affect bank’s liquidity. Those interested in liquidity would park
funds in savings bank and would avoid keeping funds in short term deposits.
Asset liability management would need modification.
As India
Lateral recruitment would cost heavy to banks and would result in to frustration of existing staff. Though there would be quick promotions due to vacuum in 2013-14 elevation would not guarantee knowledge enhancement. Therefore, people in scale V and above in public sector banks are likely to be transferred to other public sector banks.
Due to the
retirement of bank staff by 2013-14 banks’ liability towards pension payment
would increase. This would further escalate payment due to the increase in inflation?
There would be bifurcation of the post of Chairman and Managing Director. It is a myth that inflation is ever going to stop. To control inflation RBI would continue to increase statutory ratios and Repo rates which would have adverse impact on the profitability of banks as corporate would prefer to borrow from the market than on relying on banks and paying higher interest.
With the increase in the cost of funds, bank’s operating cost and other expenses would continue to increase, margins would reduce and profitability adversely affected.
9. Capitalisation of Public Sector Bank
Opening of financial sector under WTO guidelines would result into the entry of global banks in
During 2008-09, the Government infused INR1900 crore as Tier-I capital in four public sector banks to maintain a comfortable level of Capital to Risk Weighted Asset Ratio. An additional sum of INR1200 crore is being infused now. For the year 2010-11, It is proposed to provide a sum of INR 16,500 crore to ensure that the Public Sector Banks are able to attain a minimum 8 per cent Tier-I capital by March 31, 2011.
This system of strengthening capital base will not continue indefinitely in future. Hence banks would have to raise capital from the market either by issuing equity shares or preference shares with certain period of redemption or share without voting right. Raising capital may reduce Govt. holding to 33percent and to remove ceiling on voting rights Banking Regulation Act will be amended
10. Organisational Change:
Structure of banks would under go drastic change in the next decade. To manage growth and increased requirements for risk capital consolidation is likely to gain prominence. There will be spate of mergers and amalgamations. Recommendations made in the report-dated 23.4.1988 of Narasimham Committee-II would be implemented. There would be 3 or 4 large banks (including the State Bank of
- There would be more amalgamation of associate banks of State bank with the State Bank
- There would be 8 to 10 national banks with a network of branches throughout the country
- Mergers would not only be between private banks but would also be between public sector banks and private banks, between public sector banks and between banks and non-banking finance companies. Big fish will swallow small fish.
- Merger would reduce the number of branches.
- Structure of Regional Rural Banks would be made stronger.
- Pyramid structure of management would be replaced by a flat structure.
11.
Business prospects:
Technology would further revolutionise business strategy and would render flow of information. Banks would dispense with periodical returns from branches and other controlling offices but would retrieve data from their data centers for taking faster decisions. Data centres would play important role in framing policy guidelines. Technology would take care of present system of preparing business plan.
After
analysing the past trends and statistics published by RBI every quarter, the
system would project business plan and would send periodical information to
branches for achieving targets. The most significant challenges before banks
would be in maintaining rigorous credit standards and to face increased
competition for new and existing clients. Credit evaluation system would
undergo drastic changes. Banks would lays down monitoring parameters and danger
signals for an account tending to become problematic. Technology implementation
would forewarn banks.
The
present system of marketing of banking products would be replaced by segment
based marketing which would help in cross selling of products. Banks would work
out profitable customers and would give proper attention and provide services
to profitable customers. Non-profitable customers in urban and metro centres
would be charged for services. RBI would standardise service charges, but banks
would find out ways to circumvent. Payment system would be further revolunised.
Mobile payment system would become more convenient and popular.
Since globalization has opened floodgates of opportunities for corporates, overseas business of banks, exports business of banks would get a further boost, as export would constitute 35% of GDP. As country would need to generate additional employment opportunities, Small and Medium Enterprises (SME) sector would emerge as a major contributor to employment generation in the country.
Since India’s urban population is expected to rise from 28 per cent to 40 per cent of the total population by 2020, and there is likely to have future growth in and around 60 to 70 large cities having a population of one million or more, there would be great demand for finance for housing projects and for housing loans by house holders. Retail lending will receive greater focus. Banks may have to reduce the span of housing loan as the risk of uncertainty would force banks to reduce the repayment schedule. Reverse mortgage would increase but not to that extent.
13. Composition of Staff strength:
Merger of banks would reduce the number of bank branches particularly in Urban and Metro areas and there would be relocation of branches in rural and semi urban areas. With the implementation of technology banks would also close non profit bearing branches. Merger would also result in excess staff. The impact would be negated on account of mass retirement during the next 3/4 years and implementation of voluntary retirement scheme. Banks would be going for lateral recruitment of technical, specialised and managerial staff to man key positions. Work culture, work ethics and ethos would undergo complete change. Salary would no more be a guaranteed payment; it would be performance based. 360-degree employee review would replace the present system of performance review. There would be frequent employee turnover, which would be taken care by the implementation of the state of the art high-end technology. Technology would provide complete financial solution for different type of customers. There would be shift in employee’s loyalty. Trade unions would loose importance in the next decade. With the dilution of government holding, top leadership of banks may undergo a drastic change.
The present system of Human Resource Management would be
drastically changed. Though nepotisms
and favoritism would continue in the banking industry still talents will be
spotted, recognised and rewarded.
o
There would be proper and vigorous knowledge
assessment in the selection of the top positions. The present system of whom
you know would be replaced by what you know.
“As things stand today performance appraisals in public sector banks suffer from lack of o
meritorious are given their due,” (The Financial Express Mumbai 3rd Sept.2004. ‘IBA’s HR
Roadmap for Better PSB Performance)
“I recall seeing the
dossiers of executives seeking promotion to very senior levels of a very
large
bank. Indeed the best performers had a rating of 99 on a scale of 1 to 100.
Though rather
liberal, one could live with it. But the rather intriguing
phenomenon was that the average
performers, who had plateaued in their
leadership and competence skills, had been uniformally
rated at 97! Such
assessment standards need to be drastically overhauled and a grading
system
reflecting performance, installed. For senior levels, a 360 degree appraisal is
very
important” Shri Vinod Rai (IAS), Comptroller & Auditor General of
India ‘Human Resource
as A Key Driver In Indian Banking’-Performance Appraisal
and Performance Management
System” 2nd R K Tallwar Memorial Lecture– 2008,
Mumbai -25th July 2008
There would be continuous up- gradation of knowledge and skill of employees. Methods of knowledge and skill up-gradations would undergo changes. Employees would be able to log on to virtual training centres of the bank any time of the day for up-gradation of their knowledge and skill. During the next decade and decades to come, banks would be the key movers in the Indian economy.
1. Dr. A.P.J. Abdul Kalam’s book, India 2020: A Vision for the New Millennium.
2. Banking Frontiers Bacon February, 2010
3
Banking Industry Vision -2010 by IBA Committee
4. Report of the committee on India Vision 2020, Planning Commission, Government of
5.
Pushing Financial Inclusion-Issues, Challenges and way forward, presentation by
Dr. K.C.Chakarbarty, Deputy Governor, RBI
at 20th SKOCH Summit 2009, Mumbai on July 17th, 2009
6.
Financial Inclusion: Challenges and opportunities (Remark by Dr.D.Subbaro,
Governor, Reserve Bank of 7. Key note address on “Financial Inclusion and information technology”, by Deputy
Governor (Smt.Usha Throat) at Vision 2020- Indian Financial Services sector hosted
by NDTV at ballroom ,Taj Lands End ,Mumbai 0n 12.089.2008
8.
Business Correspondents and Facilitators: Pathway to Financial Inclusion
(http://www.accessdev.org/downloads/bc_report.pdf)9. McKinsey report
10. http:// censusindia.gov.in
11. www.prb.org
12. S Irudaya Rajan, ‘Population Aging and Health in
Enquiry into Health and Allied Themes (CEHAT), Mumbai
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