Impact of Gloablisationon Indian Banking Sector
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Transcript of Impact of Gloablisationon Indian Banking Sector
Impact of Globalization on Indian Banking Sector
Chapter 1 – The Indian Banking Sector
History of Banking in India
Banking in India originated in the first decade of 18th century. The oldest
bank in existence in India is the State Bank of India being established as
"The Bank of Bengal" in Calcutta in June 1806. The first fully Indian
owned bank was the Allahabad Bank, which was established in 1865.
By the 1900s, the market expanded with the establishment of banks such
as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906,
in Mumbai - both of which were founded under private ownership. The
Reserve Bank of India formally took on the responsibility of regulating
the Indian banking sector from 1935. After India's independence in 1947,
the Reserve Bank was nationalized and given broader powers.
The banking in India was controlled and dominated by the presidency
banks, namely, the Bank of Bombay, the Bank of Bengal, and the Bank
of Madras - which later on merged to form the Imperial Bank of India,
which was renamed as the State Bank of India after the independence.
There was potential for many new banks as the economy was growing.
Lord Curzon had observed then in the context of Indian banking: "In
respect of banking it seems we are behind the times. We are like some old
fashioned sailing ship, divided by solid wooden bulkheads into separate
and cumbersome compartments."
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Impact of Globalization on Indian Banking Sector
Nationalization
By the 1960s, the Indian banking industry has become an important tool
to facilitate the development of the Indian economy. At the same time, it
has emerged as a large employer, and a debate has ensued about the
possibility to nationalize the banking industry. Mrs. Indira Gandhi, the-
then Prime Minister of India expressed the intention of the GOI in the
annual conference of the All India Congress Meeting in a paper entitled
"Stray thoughts on Bank Nationalization." The paper was received with
positive enthusiasm.
Thereafter, her move was swift and sudden, and the GOI issued an
ordinance and nationalized the 14 largest commercial banks with effect
from the midnight of July 19, 1969. Jayaprakash Narayan, a national
leader of India, described the step as a "masterstroke of political
sagacity." Within two weeks of the issue of the ordinance, the Parliament
passed the Banking Companies (Acquisition and Transfer of
Undertaking) Bill, and it received the presidential approval on 9th
August, 1969.
A second dose of nationalization of 6 more commercial banks followed in
1980. The stated reason for the nationalization was to give the
government more control of credit delivery. With the second dose of
nationalization, the GOI controlled around 91% of the banking business
of India.
After this, until the 1990s, the nationalized banks grew at a pace of
around 4%, closer to the average growth rate of the Indian economy.
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Impact of Globalization on Indian Banking Sector
Liberalization
In the early 1990s the then Narsimha Rao government embarked on a
policy of liberalization and gave licenses to a small number of private
banks, which came to be known as New Generation tech-savvy banks,
which included banks such as Global Trust Bank (the first of such new
generation banks to be set up)which later amalgamated with Oriental
Bank of Commerce, UTI Bank(now re-named as Axis Bank), ICICI Bank
and HDFC Bank. This move, along with the rapid growth in the economy
of India, kick started the banking sector in India, which has seen rapid
growth with strong contribution from all the three sectors of banks,
namely, government banks, private banks and foreign banks.
The new policy shook the Banking sector in India completely. Bankers,
till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%;
Go home at 4) of functioning. The new wave ushered in a modern
outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India
Functions of Banks today
Banks act as payment agents by conducting checking or current accounts
for customers, paying cheques drawn by customers on the bank, and
collecting cheques deposited to customers' current accounts. Banks also
enable customer payments via other payment methods such as telegraphic
transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current account,
accepting term deposits and by issuing debt securities such as banknotes
and bonds. Banks lend money by making advances to customers on
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Impact of Globalization on Indian Banking Sector
current account, by making installment loans, and by investing in
marketable debt securities and other forms of lending.
Banks provide almost all payment services, and a bank account is
considered indispensable by most businesses, individuals and
governments. Non-banks that provide payment services such as
remittance companies are not normally considered an adequate substitute
for having a bank account.
Banks borrow most funds borrowed from households and non-financial
businesses, and lend most funds lent to households and non-financial
businesses, but non-bank lenders provide a significant and in many cases
adequate substitute for bank loans, and money market funds, cash
management trusts and other non-bank financial institutions in many
cases provide an adequate substitute to banks for lending savings to.
The economic functions of banks include:
Issue of money -- Issue of money, in the form of banknotes and current
accounts subject to cheque or payment at the customer's order. These
claims on banks can act as money because they are negotiable and/or
repayable on demand, and hence valued at par and effectively
transferable by mere delivery in the case of banknotes, or by drawing a
cheque, delivering it to the payee to bank or cash.
Netting and settlement of payments -- banks act both as collection agent
and paying agents for customers, and participate in inter-bank clearing
and settlement systems to collect, present, be presented with, and pay
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Impact of Globalization on Indian Banking Sector
payment instruments. This enables banks to economize on reserves held
for settlement of payments, since inward and outward payments offset
each other. It also enables payment flows between geographical areas to
offset, reducing the cost of settling payments between geographical areas.
Credit intermediation -- banks borrow and lend back-to-back on their
own account as middle men
Credit quality improvement -- banks lend money to ordinary commercial
and personal borrowers (ordinary credit quality), but are high quality
borrowers. The improvement comes from diversification of the bank's
assets and the bank's own capital which provides a buffer to absorb losses
without defaulting on its own obligations. However, since banknotes and
deposits are generally unsecured, if the bank gets into difficulty and
pledges assets as security to try to get the funding it needs to continue to
operate, this puts the note holders and depositors in an economically
subordinated position.
Maturity transformation -- banks borrow more on demand debt and short
term debt, but provide more long term loans. Bank can do this because
they can aggregate issues (e.g. accepting deposits and issuing banknotes)
and redemptions (e.g. withdrawals and redemptions of banknotes),
maintain reserves of cash, invest in marketable securities that can be
readily converted to cash if needed, and raise replacement funding as
needed from various sources (e.g. wholesale cash markets and securities
markets) because they have a high and more well known credit quality
than most other borrowers.
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Impact of Globalization on Indian Banking Sector
The Financial and Other services provided by banks
Merchant banking: Merchant Banking is an organization which
underwrites securities for the company, advises in various activities.
Banks provide services to businessmen to promote their business.
Leasing: Banks have started funding the fixed assets through leasing. A
written agreement is made in this respect.
Mutual Funds: Banks have floated new subsidiaries to undertake the
business of Mutual Funds. The main function of mutual fund is to
mobilize the saving of general public and invest them in stock market and
money market. Unit Trust of India is the first mutual fund started in India
in 1964. The nationalized banks have started their mutual funds through
subsidiaries.
Money Transfer: Banks are helping business and society for transfer of
money from place to place or person to person.
Housing Finance: There are variety of housing finance schemes stared
by banks. Such as purchase of new house, construction of new home,
home improvement, repairs, extension, land purchase, Bridge loans, and
balance transfer loans.
Portfolio Management: Portfolio management is a process of investment
in securities. The portfolio should be reviewed and adjusted from time to
time in tune with the market conditions.
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Impact of Globalization on Indian Banking Sector
Structure of the Banking System
Central Bank (Reserve Bank)
Commercial Bank Co-operative Bank
Scheduled Bank Non-Scheduled Bank
Indian Bank Foreign Bank
Public Sector Regional Rural Local Area Private Sector
Bank Bank Bank Bank
SBI& Group Nationalized Bank Old Bank New Bank
Importance of Banks
We need banks in our day to day life. Banks cater to the needs of farmers,
businessman, traders, industrialists and common people in the society.
Common people save money, which they put into bank for safety,
security and getting some return out of it. Businessmen, traders and
industrialists open their account in the bank and carry out their
transactions for receipts of payment of money through cash or cheques.
They can also get loans from the bank for financing their business
activities. Farmers can borrow money from the bank for seeds, irrigation,
fertilizers, etc. They can also save and invest their surplus money in the
banks. Thus, banks are needed by every section of our society.
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Impact of Globalization on Indian Banking Sector
Banks are an indispensable part in the modern developing society. They
act as an agent of their customers in performing the functions such as
collection of dividends, pensions, purchase and sale of securities and
payments of salary and other expenses. Banks are also needed by the
Government. Banks act as agent as well as banker of the Government.
They collect money from the Public, tax payers and businessmen on
behalf of the Government and payments are also made through the
Government. Only a bank can issue cheque books to the depositors
because they are authorized by the Banking Regulations Act.
A bank performs a multitude of functions and services which cannot be
reached into a single definition. A bank may mean different things for
different people. For some it is a store house of money, for others an
institution of funding money and to get finance and yet something else to
others.
Banking today means a lot more ….
In Current situation, banking in India is generally fairly mature in terms
of supply, product range and reach-even though reach in rural India still
remains a challenge for the private sector and foreign banks. In terms of
quality of assets and capital adequacy, Indian banks are considered to
have clean, strong and transparent balance sheets relative to other banks
in comparable economies in its region. The Reserve Bank of India is an
autonomous body, with minimal pressure from the government.
With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment services are
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Impact of Globalization on Indian Banking Sector
expected to be strong. One may also expect M & As, takeovers, and asset
sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to
increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%.
This is the first time an investor has been allowed to hold more than 5%
in a private sector bank since the RBI announced norms in 2005 that any
stake exceeding 5% in the private sector banks would need to be vetted
by them.
Currently, India has 88 scheduled commercial banks (SCBs) , 28
public sector banks (that is with the Government of India holding a
stake), 29 private banks (these do not have government stake; they may
be publicly listed and traded on stock exchanges) and 31 foreign banks.
They have a combined network of over 53,000 branches and 17,000
ATMs. According to a report by ICRA Limited, a rating agency, the
public sector banks hold over 75 percent of total assets of the banking
industry, with the private and foreign banks holding 18.2% and 6.5%
respectively.
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Impact of Globalization on Indian Banking Sector
Chapter - 3 Globalization
Introduction to Globalization
Globalization in its literal sense is the process of making, transformation
of some things or phenomena into global ones. It can be described as a
process by which the people of the world are unified into a single society
and function together. This process is a combination of economic,
technological, socio-cultural and political forces. Globalization is often
used to refer to economic globalization, that is, integration of national
economies into the international economy through trade, foreign direct
investment, capital flows, migration, and the spread of technology.
The concept of Globalization infers that the globe is a single unit which
functions as one when it comes to decision-making. In other words,
Globalization implies the free movement of goods, services and capital
throughout the world. Globalization involves the opening up of national
economies to global markets.
Many Socialists define Globalization as a primarily economic
phenomenon, which involves increasing interaction and integration of
national economic systems. This leads in turn to growth in international
trade, investment and capital flows. Moreover, there is a rapid increase in
cross-border social, cultural and technological exchanges because of the
phenomenon of globalization.
The sociologist defines globalization as a decoupling of space and time.
With the advent of instantaneous communications, knowledge, trade and
culture can be shared around the world simultaneously. This will
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Impact of Globalization on Indian Banking Sector
ultimately result in an increase in international trade, investment and
capital flows.
On the other hand, some critics define Globalization as ''the worldwide
drive towards a globalize economic system, dominated by supranational
corporate trade and banking institutions that are not accountable to the
democratic processes or national governments. Due to Globalization, all
important institutions like the nation, state, family, work, services, trade,
leisure, culture, knowledge etc. are changing. As a result of this, life
styles of people throughout the world are also changing, making the
world a single unit when it comes to decision making.
A Brief History of Globalization
The word "globalization" has been used by economists since the 1980s;
however, its concepts did not become popular until the latter half of the
1980s and 1990s.
Globalization is viewed as a centuries long process, tracking the
expansion of human population and the growth of civilization, that has
accelerated dramatically in the past 50 years. Early forms of globalization
existed during the Roman Empire, the Parthian empire, and the Han
Dynasty, when the silk road started in China, reached the boundaries of
the Parthian empire, and continued onwards towards Rome. Global
integration continued through the expansion of European trade in the 16th
and 17th centuries, when the Portuguese and Spanish Empires expanded
to the Americas. Globalization has had a tremendous impact on cultures,
particularly indigenous cultures, around the world.
Four distinct phases of globalization can be discerned in modern history:-
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Impact of Globalization on Indian Banking Sector
The “first phase” began in sixteenth century with the passing of pre-
modern localism, improvements in maritime technology leading to great
age of maritime exploration and discovery.
The “second phase” from the late eighteenth century was marked by
the spread of industrial revolution and vast improvements in human
technology, productivity and demand, which lead to mass production.
The Industrial Revolution opened up a rapidly and widening income gap
between Europe and America on the other hand and the rest of the world
on other.
During the “third phase”, merchandise trade resumed its triumphant
march as the engine of hyper growth in East Asia from the 1970s.
International trade/GDP ratios recovered to their late 19 th century level by
the last decade of the 20th century. This globalization thrust was led by
trans -national corporations (TNCs) that endeavored disseminate
international trade and modern technology to every flag on earth.
Globalization arguably entered in the “frenetic fourth phase” from the
end of the twentieth century, in which developed and developing
countries are becoming more equal partners in the flow of cross border
trade and investment, as per capita income between the developed and
developing countries of the world rapidly converge, galvanized by the
awakening of the ancient sleeping giants, China and India.
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Impact of Globalization on Indian Banking Sector
Globalization Understandings
"Globalization simply means freedom of movement for goods and
people, and it is hard to be violently hostile to that”. This term has
become a common word within the last few decades. This is a coming
event and some people are looking forward to the coming events. Others
fear and protest away from it. Some even see it as a defining point soon to
come to change our lives.
Pros and Cons of Globalization
The debates are strong and fierce for and against globalization. To take a
look closer at this, we view the pros and cons of globalization itself.
According to an April 2000 issue of Business Week these are the most
common Pros and Cons.
Pros
1. Viewing both the Productivity grows more quickly when
countries produce goods and services in which they have a
comparative advantage. Living standards can go up faster.
2. Global competition and cheap imports keep a lid on prices, so
inflation is less likely to derail economic growth.
3. An open economy spurs innovation with fresh ideas from
abroad.
4. Export jobs often pay more than other jobs.
5. Unfettered capital flows give the U.S. access to foreign
investment and keep interest rates low.
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Impact of Globalization on Indian Banking Sector
The Pros for globalization show that prices will be kept at one set price
and that money will be quickly made by all. That help with foreign
countries could also speed up technology as well. Technology could help
the underdeveloped countries in the long run, and help everyone overall
economically.
Cons
1. Millions of domestic people lose their jobs due to imports or
production shifts abroad. Most find new jobs - that pay less.
2. Millions of others fear losing their jobs, especially at those
companies operating under competitive pressure.
3. Workers face pay-cut demands from employers, which often
threaten to export jobs.
4. Service and white-collar jobs are increasingly vulnerable to
operations moving offshore.
5. U.S. employees can lose their comparative advantage when
companies build advanced factories in low-wage countries,
making them as productive as those at home.
The Con list shows that the concerns are that smaller businesses will be
put out of business by larger ones. Also stating that only the white-collar
or richer people will be making a benefit in the changes.
It can be said that form the above observations made about globalization,
both sides have good points. Pro groups are saying there is money for all
and that it will help undeveloped countries grow. The anti group in
retaliation are saying that only the rich will gain from this globalize
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Impact of Globalization on Indian Banking Sector
economy. Both continue to fight for what they see as right in their own
ways. But without more facts and effort from the anti-globalist this
economy is going to continue towards globalization. Only time will tell
what the real outcome really will be
Globalization in the era since World War II is largely the result of
planning by economists, business interests, and politicians who
recognized the costs associated with protectionism and declining
international economic integration. Their work led to the Bretton Woods
conference and the founding of several international institutions intended
to oversee the renewed processes of globalization, promoting growth and
managing adverse consequences. These institutions include the
International Bank for Reconstruction and Development (the World
Bank), and the International Monetary Fund.
Critics have observed that the term's contemporary usage comprises
several meanings. The term "globalization," like most terms of public
discourse, has two meanings: its literal meaning, and a technical sense
used for doctrinal purposes. In its literal sense, "globalization" means
international integration. In the technical sense defined by the powerful,
they are described as "anti-globalization," which means that they favor
globalization directed to the needs and concerns of people, not investors,
financial institutions and other sectors of power, with the interests of
people incidental.
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Impact of Globalization on Indian Banking Sector
Measuring globalization Looking specifically at economic globalization, it can be measured in
different ways. These center around the four main economic flows that
characterize globalization:
1.Goods and services, e.g. exports plus imports as a proportion of
national income or per capita of population
2.Labor/people, e.g. net migration rates; inward or outward migration
flows, weighted by population
3.Capital, e.g. inward or outward direct investment as a proportion of
national income or per head of population
4.Technology, e.g. international research & development flows;
proportion of populations (and rates of change thereof) using particular
inventions (especially 'factor-neutral' technological advances such as the
telephone, motorcar, broadband).
Aspects Of Globalization
Globalization has various aspects which affect the world in several
different ways such as:
Industrial - emergence of worldwide production markets and broader
access to a range of foreign products for consumers and companies.
Particularly, the movement of material and goods between and within
transnational corporations, and access to goods by wealthier nations and
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Impact of Globalization on Indian Banking Sector
individuals at the expense of poorer nations and individuals who supply
the labor.
Financial - emergence of worldwide financial markets and better access
to external financing for corporate, national and sub national borrowers.
Simultaneous though not necessarily purely globalize is the emergence of
under or un-regulated foreign exchange and speculative markets leading
to inflated wealth of investors and artificial inflation of commodities,
goods, and in some instances entire nations as with the Asian economic
boom-bust that was brought on externally by "free" trade.
Economic - realization of a global common market, based on the freedom
of exchange of goods and capital.
Informational - increase in information flows between geographically
remote locations. Arguably this is a technological change with the advent
of fiber optic communications, satellites, and increased availability of
telephony and Internet, to the globalist ideology.
Cultural -growth of cross-cultural contacts; advent of new categories of
consciousness and identities such as Globalism - which embodies cultural
diffusion, the desire to consume and enjoy foreign products and ideas,
adopt new technology and practices, and participate in a "world culture";
loss of languages
Social - increased circulation by people of all nations with fewer
restrictions. Provided that the people of those nations are wealthy enough
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Impact of Globalization on Indian Banking Sector
to afford international travel, which the majority of the world's population
is not. An illusory 'benefit' recognized by the elite and wealthy, and
increasingly so as fuel and transport costs rise.
Advantages of Globalization
1. Goods and people are transported with more easiness and speed
2. free trade between countries increases
3. global mass media connects all the people in the world
4. as the cultural barriers reduce, the global village dream becomes
more realistic
5. the interdependence of the nation-states increases
6. as the liquidity of capital increases, developed countries can invest
in developing ones
7. the communication between the individuals and corporations in the
world increases
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Impact of Globalization on Indian Banking Sector
Effects of globalization
1. enhancement in the information flow between geographically
remote locations
2. the global common market has a freedom of exchange of goods
and capital
3. there is a broad access to a range of goods for consumers and
companies
4. worldwide production markets emerge
5. free circulation of people of different nations leads to social
benefits
6. corporate, national and sub national borrowers have a better access
to external finance
7. worldwide financial markets emerge
8. multiculturalism spreads as there is individual access to cultural
diversity. This diversity decreases due to hybridization or
assimilation
9. international travel and tourism increases
10.worldwide sporting events like the Olympic Games and the FIFA
World Cup are held
11.local consumer products are exported to other countries
12.immigration between countries increases
13.cross-cultural contacts grow and cultural diffusion takes place
14.there is an increase in the desire to use foreign ideas and products,
adopt new practices and technologies and be a part of world culture
15.free trade zones are formed having less or no tariffs
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Impact of Globalization on Indian Banking Sector
16. due to development of containerization for ocean shipping, the
transportation costs are reduced.
Chapter 4- Impact of Globalization on developing countries
Globalization is the new buzzword that has come to dominate the world
since the nineties of the last century with the end of the cold war and the
break-up of the former Soviet Union and the global trend towards the
rolling ball. The frontiers of the state with increased reliance on the
market economy and renewed faith in the private capital and resources, a
process of structural adjustment spurred by the studies and influences of
the World Bank and other International organizations have started in
many of the developing countries. Also Globalization has brought in new
opportunities to developing countries. Greater access to developed
country markets and technology transfer hold out promise improved
productivity and higher living standard. But globalization has also thrown
up new challenges like growing inequality across and within nations,
volatility in financial market and environmental deteriorations. Another
negative aspect of globalization is that a great majority of developing
countries remain removed from the process. Till the nineties the process
of globalization of the Indian economy was constrained by the barriers to
trade and investment liberalization of trade, investment and financial
flows initiated in the nineties has progressively lowered the barriers to
competition and hastened the pace of globalization
Globalization and Inflation
Ironically a chief culprit of today’s Inflation is the source that has kept
inflation low for much of the last two decades. It’s long being an article
of faith among economists that increasing integration of national
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Impact of Globalization on Indian Banking Sector
economies contributed heavily to global decline in inflation.
Globalization allows domestic companies to hold down labor cost-via
outsourcing. Globalization forced the world global bankers to raise their
game to ensure that their countries can attract capital and investment. In
recent study the more globalize nations tend to pursue policies that
achieve faster economic growth, lower inflation, higher income, greater
economic freedom.
Globalization means people all over the globe have a greater ability to
share common experience of inflation. Globalization has brought about
structural changes in the world economy. This includes services
particularly banking and finance services is yet to capture the attention of
researchers and policy makers in many countries.
Globalization and Poverty:
Globalization in the form of increased integration though trade and
investment is an important reason why much progress has been made in
reducing poverty and global inequality over recent decades. But it is not
the only reason for this often unrecognized progress, good national
polices, sound institutions and domestic political stability also matter.
Despite this progress, poverty remains one of the most serious
international challenges we face up to 1.2 billion of the developing world
4.8 billion people still live in extreme poverty. But the proportion of the
world population living in poverty has been steadily declining and since
1980 the absolute number of poor people has stopped rising and appears
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Impact of Globalization on Indian Banking Sector
to have fallen in recent years despite strong population growth in poor
countries.
It can be said that globalization has both positive and negative impacts on
a developing country like India. Pro groups are saying there is money
for all and that it will help undeveloped countries grow. The anti group in
retaliation are saying that only the rich will gain from this globalize
economy. Both continue to fight for what they see as right in their own
ways. But without more facts and effort from the anti-globalist this
economy is going to continue towards globalization. Only time will tell
what the real outcome really will be.
Globalization In India
A large number of global multinational brands such as Coca-Cola,
Google, Micro-soft and Mercedes-Benz have successfully operating in
India. Indian Brands which were operating locally in India earlier have
started competing internationally. From New Delhi to New York brands
have become global.
Pattern of consumption in India has also changed. Level of spending on
the private consumption has been growing significantly. Spending by
young consumers in India is regarded as the most powerful consumers.
In an era of globalize environment, the country has become a major
player in the socio-economic fields from merely a third world
country. BRIC and other reports have forecasted India to be the
third largest economy by 2040.
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Impact of Globalization on Indian Banking Sector
Globalization in India has transformed the country’s system. Presently
India is regarded as an economy dominated country rather than politics
driven, as it was earlier. Political dominance has fallen significantly these
days. Adoption of Globalization in India and liberalization principles has
widened the horizon of country's Consumers worldwide. Consumers in
India have become more conscious. Market information in India has
become clear.
More over, development in education and awareness is largely marked in
the country in the era of Globalization in India
Globalization in India has been advantageous for companies that have
ventured in the Indian market. By simply increasing their base of
operations, expanding their workforce with minimal investments, and
providing services to a broad range of consumers, large companies
entering the Indian market have opened up many profitable opportunities.
Indian companies are rapidly gaining confidence and are themselves now
major players in globalization through international expansion. From
steel to Bollywood, from cars to IT, Indian companies are setting
themselves up as powerhouses of tomorrow’s global economy.
Impact on India:
India opened up the economy in the early nineties following a major
crisis that led by a foreign exchange crunch that dragged the economy
close to defaulting on loans.
The response was a slew of Domestic and external sector policy measures
partly prompted by the immediate needs and partly by the demand of the
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Impact of Globalization on Indian Banking Sector
multilateral organizations. The new policy regime radically pushed
forward in favor of amore open and market oriented economy.
Major measures initiated as a part of the liberalization and globalization
strategy in the early nineties included scrapping of the industrial licensing
regime, reduction in the number of areas reserved for the public sector,
amendment of the monopolies and the restrictive trade practices act, start
of the privatization program, reduction in tariff rates and change over to
market determined exchange rates.
Over the years there has been a steady liberalization of the current
account transactions, more and more sectors opened up for foreign direct
investments and portfolio investments facilitating entry of foreign
investors in telecom, roads, ports, airports, insurance and other major
sectors.
Globalization and the future of Indian economy:
Globalization is an inevitable, irreversible process despite some vested
interests trying to thwart it and some other vested interests trying to take
better advantage of globalization than others. This is because the
increasing prosperity of people at large of each and every country in the
World is dependent on global trade, economic cooperation and global
integral of economic activities in all spheres- trade, commerce, financial
services, technology commercialization, conservation of exhaustible
resources, information and knowledge acquisition, protection of
environment, ecology, food and health security, enrichment of cultural
diversity, tourism, travel, and so on. This is being increasingly realized by
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Impact of Globalization on Indian Banking Sector
more and more common citizens of almost every country. The vested
interests of military/ dynastic ideological exploitation and oppression are
getting exposed and will not be able to keep common people away from
globalization and its benefits for long.
Indian economy will also benefit and grow at a rapid rate, ensuring
radical improvements in standards of living and quality of life for more
than 1.1 billion Indians over the years. The increasing trend towards
regional trade agreements and bilateral trade agreements will make India
realize that India is already on the fast march on the path of globalization.
India is becoming more expert in sorting out issues at WTO. This may
create problems for politicians and their parties, they will not be able to
live the comfortable luxurious lives and enjoy the privileges of power to
control the lives of the masses, keeping them at their mercy for long.
Importers have strong financial interest in globalize economy. But the
greater danger posed by unrestricted globalization is that it may
exacerbate problem of nagging poverty and uneven development. It is
already evident that Indian Economy has become more dependent on
imports which have brought pressure on value of rupee, leading to high
Inflation.
For coping with risk that arise out of globalization Banks have adopted
reforms in calibrated manner. Due to globalization not only the GDP has
increased but also the direction of growth in the sectors has also been
changed. Earlier the maximum part of the GDP in the economy was
generated from the primary sector but now the service industry is
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Impact of Globalization on Indian Banking Sector
devoting the maximum part of the GDP. The services sector remains the
growth driver of the economy with a contribution of more than 57 per
cent of GDP. India is ranked 18th among the world’s leading exporters of
services with a share of 1.3 per cent in world exports. The service sector
is expected to benefit from the ongoing liberalization of the foreign
investment regime into the sector.
The Faces Of Globalization: A Dilemma For India
It's good for the economy; it creates employment, lots of it, and working
nights at India's back offices is pleasing and financially rewarding for a
huge number of young Indians.
However, while India's money-spinning industry of taking service jobs
from overseas is turning out to be a source of discomfort for U.S. and
European politicians, the subcontinent is fast realizing that its now-famed
success in so-called Business Process Outsourcing may have come at the
cost of a generation's mental well-being.
Owing to the 10 1/2 hour time difference between the Western
Hemisphere, particularly the United States, which sends more service
jobs abroad than anyone else, almost all Indian back office operations
have to work at shifts typically running from 5 p.m. to 3 a.m. local time
to coincide with the daytime office hours in the United States. And it's
this working at nights that requires adjusting the biological clock and
social practices to a different time, which is turning out to be a major
cause for health-related and social problems.
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Impact of Globalization on Indian Banking Sector
Still, even as the money and the act of donning an American life-style
through their working hours continues to be the initial draw for many
youngsters in the country's numerous back offices and call centers, a
worry that is looming large is: high social and health costs that the
country is paying for raking in billions of dollars, spoil India's back office
party sooner rather than later.
Cases of successful Mergers in India as a result of globalization
Globalization and mergers in India are among the most popular issues in
India and there has been plenty of debate surrounding these issues. Of
late, several sectors of the economy are heating up with numerous
mergers and global alliances. According to a recent review, this will
improve the economy of the country.
Mergers in India have led to a massive upsurge in the Indian economy.
Numerous companies in the auto sector, steel sector, cement sector,
pharmaceutical sector, petrochemical sector, and many more have
experienced mergers with the global companies. Among all the industrial
sectors in India, these are the few sectors which have witnessed the
maximum profit brought in by globalization and mergers with global
associations. The automotive sector is on the top list among the mergers
in India with Maruti Udyog Pvt. Ltd. and Tata Motors ruling the sector.
Tata Motors, one of the leading organizations in the auto sector has had
the maximum mergers and deals with trucks and agricultural machinery
besides cars and motors. The Fiat Company is looking forward to some
big-time trade through mergers in India as well and is already being
distributed by Tata Motors in India.
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Impact of Globalization on Indian Banking Sector
The mergers and acquisitions done by the global companies in India are
susceptible to continuous change in practicing the same. Globalization
and mergers in India is an influential perspective of any corporate
executive on every detail of mergers and acquisitions exercised around
the world. The transactions in the mergers in India include governing
mergers, joint ventures, acquisitions, takeovers, and other kinds of cross-
border transactions.
According to the expert knowledge of domestic markets, it is mandatory
to have International Mergers & Acquisitions Law for any company or
occupational group who is pursuing a global business strategy. The trends
and growth of mergers and acquisition dealings, changes in regulative
sector, and restructuring of the already modified associates led to a
marked increase in the globalization and mergers in India.
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Impact of Globalization on Indian Banking Sector
Chapter 5 - Impact of Globalization on Indian Banking Sector
The term globalization connotes enhanced connectivity among people
across the national borders. The nature and pace of globalization depends
on the combined effect of technology and the public policy both at the
national and international levels. With the growing integration of
economies and the markets around the world, global banking has arrived
and is here to stay. Globalization will further fillip with the opening of
financial services under WTO. India, being one of the signatories of
financial services agreement of 1997, is poised to expand the reach of its
financial services, including banking, on a reciprocal basis to many
countries.
The process of globalization will increase the presence of international
players in the banking arena in India. Similarly, some of the Indian banks
will become global players. So, the banks will perforce spread their net
beyond borders in their quest for new markets, customers and profit.
Against this backdrop, banks in India must not only prepare themselves
to retain business back home but also to capture business in hitherto-
unexplored markets by competing with their global counterparts. Size is
not the only problem. Indian banks are considered to be lacking in
necessary products, skill sets on the part of their human resources and
risk-taking. The implementation of Basel II norms in right earnest is,
therefore, critical for Indian banks seeking an international presence. It is
felt that top international banks will enjoy lesser capital requirements on
29
Impact of Globalization on Indian Banking Sector
the back of their superior risk management practices. This will enable
them to price their products aggressively when compared to the banks in
India.
Another key issue facing banks planning to go global is having a real
knowledge of the foreign market and making the best preparation
possible for an entry into it. Banks must be focused and disciplined. They
need a long-term plan, know what they want to achieve, consider the
strategic benefits, assess the risks and identify the competencies and
challenges. This global move may be achieved through joint venture or an
acquisition or any other route, but not before analyzing the market and
competitors. The challenges do not stop with successful market entry.
The banks must continuously evaluate and update their operations and
optimize the business processes to main competitive. The Reserve Bank
of India has, however, prepared sufficient ground on domestic turf so that
the aspiring Indian banks will not be left behind in their bid to become
truly global players. As pointed out by V Leeladhar, Deputy Governor of
The RBI, in a speech delivered to Kanara chamber of commerce and
Industry in March, Indian Banking Sector has already implemented
internationally followed prudential accounting norms for the
classification of assets, income recognition and loan-loss provisioning.
Currently, the banking sector in India complies with transparency and
disclosure norms comparable with the best international practices.
Overall, the Indian Banking sector is stronger today than it was a decade
ago. The focus on the microfinance and lending to small and medium
enterprise firms welcome change for the banking sector as well as the
economy and society as a whole. Finding opportunities at the bottom of
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Impact of Globalization on Indian Banking Sector
the pyramid rather than regulator-mandated loan-publishing is likely to
help in better distribution of the economic gains as well as opportunities.
Managing the risk through the implementation of the Basel II is likely to
be an important step of Indian Banking Sector in the future. Banks and
financial institutions will continue to experiment with new technologies
and electronic, information based services to serve their customers better.
The potential is great, yet the return on investment will be realized only in
the long term. Proper alignment of technology strategies with business
goals will ensure commensurate value addition to banks.
Also, banks are rediscovering the need for more brick-and-mortar
branches as the most effective touch points for building relationships,
marketing and selling. Advancements in technology like data mining and
business intelligence will enable and empower branch personnel to
realize higher customer life cycle value. The information-intensive nature
of banking and financial service is unlikely to change. Banks will
continue to find new and innovative ways to put technology and business
risks associated with these investment proactively.
Globalization of Banking in India
Integration of economies leads to integration of financial markets
catalyzing the globalization process. The growing role of the financial
sector in allocation of resources has significant potential advantages for
the efficiency with which our economy functions. Consequently, the
adverse consequences of malfunction of the financial system are likely to
be more severe than they used to be in the past. Hence, all our efforts
today are focused at ensuring greater financial stability. Given the
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Impact of Globalization on Indian Banking Sector
significance of the Indian banking system, one cannot afford to underplay
the importance of a robust and resilient banking system.
The enhanced role of the banking sector in the Indian economy, the
increasing levels of deregulation along with the increasing levels of
competition have facilitated globalization of the India banking system
and placed numerous demands on banks. Operating in this demanding
environment has exposed banks to various challenges. The last decade
has witnessed major changes in the financial sector - new banks, new
financial institutions, new instruments, new windows, and new
opportunities - and, along with all this, new challenges. While
deregulation has opened up new vistas for banks to augment revenues, it
has entailed greater competition and consequently greater risks. Demand
for new products, particularly derivatives, has required banks to diversify
their product mix and also effect rapid changes in their processes and
operations in order to remain competitive in the globalize environment.
The benefits vis-à-vis Costs
To derive maximum advantage from technology investments, banks
should use technology as a strategic resource and align it well with their
business strategies and objectives. The strategic plan should clearly spell
out how much business value it can enhance and it should not be used as
mere publicity stunt. It is crucial that experts who have sufficient
exposure to both banking and technology domains formulate the strategic
planning. It is difficult to measure productivity in financial services
unlike in the rest of the service sector, since there is a constant
improvement in the quality of service in the quality of service in his
sector due to greater convenience, speed and lower risk. Moreover,
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Impact of Globalization on Indian Banking Sector
measuring the inputs used to produce outputs is not easy. Lack of
consistent data also hampers researchers from analyzing the cost and
benefits reliably. However, investments in the IT is justified by most
CEOs as the cost for retaining good customers, if not attracting new ones,
and for the better competitive advantage it provides.
Significance of Service Quality in Banking
With continuous growth of competition in market place, understanding
the customer has become more and more important. Research show that
high quality contributes significantly to Profitability. The result of the
present study shows that the Internet is a convenience tool available
whenever and wherever customers need it. It is also found that the
Internet has improved the factors in service quality like responsiveness,
communication and access. It is concluded that the Internet has an
important and positive effect on customer perceived banking services and
the service quality has been improved since the Internet has been used in
banking sector. Furthermore, the study offers suggestions to banking
managers to allocate their resources on the dimensions i.e., reliability,
responsiveness, security, communication and access to improve service
quality according to its relative importance since the Internet has been
used.
Now a days incredible growth of technology-intensive- new delivery
channels has liberalized the customers from the constraints of time and
space. Thanks to the high-level of service quality and standard, ATMs
have transformed the sway the customers carry out their banking
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Impact of Globalization on Indian Banking Sector
transactions. Quality initiatives like Six Sigma can go a long way in
controlling this variance to ensure uniform customer experience.
Infusion of Technology made a Difference
Unlike the global banks, Indian banks have hooked on to the
computerization drive rather late, i.e., by the 1980s and 1990s. They
began with PC-based system, moved on to total branch automation and
later to networking and implementation of centralized/Core Banking
Solution (CBS).Banks tend to use information technology more
intensively and practice niche banking. Efficiency ladder has been driven
almost exclusively by the new private banks – ICICI, UTI, HDFC, etc.
Some new technologies introduced are:
Core banking solutions(CBS)
The concept of CBS, which allows a customer to fulfill a wide range of
banking operations online, has come alive during past four years. The
number of branches providing CBS has grown rapidly to 44 percent
since last years. The combination of a centralized database and browser
client is a powerful enabler of business process changes, as the processes
can be centralized, decentralized, split across locations or completely
outsourced at short notice to improve efficiency, enhance quality or
reduce risk. Core Banking Platform's open architecture ensures easy
interface to third party systems. The product can be interfaced with
various delivery channels like ATM, Internet Banking and Phone-
banking. It has a common set of service components that provide a
uniform customer experience across all channels. It has a user-friendly,
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Impact of Globalization on Indian Banking Sector
browser-based interface and operates in a truly 24 x 7 x 365 basis with
uninterrupted transaction execution.
Instant Fund Transfer: RTGS and NEFT
National Electronic Fund Transfer(NEFT) enables us to transfer funds
electronically from our bank account to an account in an other bank.
Typically it takes a day for an account to be debited and other to be
credited. There are no lower or upper limits for NEFT and generally
banks do not charge their customers who avail this facility.
Real Time Gross Settlement is where money is actually transferred
instantly to beneficiary account. If the amount is not transferred to the
beneficiary account within two hours for some reason the money is
credited back to your account.
High tech banking
ATMs: With growing technological innovations, banks have significantly
expanded their ATM network over the past three years. According to RBI
data as of end June2008, the number of ATMs in the country had climbed
to 36314 compare to 27088 at end March 2007 respectively.
Loan Disbursement: Technology has facilitated the growth in loan
disbursement also, making the whole process simpler and faster. The
sector has delivered a growth of 30% a year over last 4-5 years.
The Impact on Customers
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Impact of Globalization on Indian Banking Sector
The shift from branch counter to e-channels has indeed enhanced
customer service and convenience. The dream of anytime, anywhere
banking is a reality now. With facilities like mobile alerts, customers can
get real-time information about transactions in their accounts. The
warmth and human touch is missing because of the mechanical media,
leaving many a customer to contemplate the benefits of talking to the
good old banker. The silver lining for customers is that they can shift to
competitor’s banks easily if they are not satisfied with the services from
the present bank.
Innovation and Branding the Product
Experts opine that innovation is the key to the sustained growth of the
banking industry in future. However, innovation cannot be limited to
products and brands. Successful financial service players are required to
embed innovation in every aspect of their functioning, ranging from
products and processes to even people, system and business partners.
However, product innovation is important and such innovative products
need to be tailor-made for different customer segments; for example
specific to age groups, regions and so on. However, a bank should
develop a clear vision on the various parameters of innovations.
Banking ‘Then’ and ‘Now’
Indian villages were deprived of various financial products like MF,
insurance and equity trading, which are now accessible through proxy
banking in form of ATMs and kiosks. This is possible because banking
36
Impact of Globalization on Indian Banking Sector
transactions are stored in a centrally located server with which all other
branches are connected.
Chapter 6- Implication of Globalization
Globalization has had an impact on different cultures around the world.
The seeds of globalization have been sowed with the introductions of
financial sector reforms. These include the following:
1) Deregulation of interest rates,
2) Capital Adequacy norms,
3) Internationally accepted accounting norms,
4) Asset classification,
5) Entry of Private Banks,
6) Reduction of Government stake in banks.
With reforms and the rapid globalization the very character of banks
underwent a fundamental change. Enhancing the profit and profitability
has become one of the major concerns for the banks. The prime driver
behind the reduction of cost is the increase of operational efficiency of
the banks. With the advent of Internet banking, the path for tremendous
cost saving was paved.
Commercial bank through out the world has been undergoing a major
transformation. Traditional banks have long been exposed to strong
external pressures brought about the influence of worldwide globalization
37
Impact of Globalization on Indian Banking Sector
and unceasing technological development. Banks have been rapidly
expanding the menu of financial services they offer to their customers.
This proliferation of services has accelerated over the years under the
pressure of increasing competition from other financial firms. It has also
increased bank costs and posed a greater risk of bank failure. The new
services have had a positive effect on the industry through a new source
of bank revenue (interest income).
Interest Rates; likely Scenario
Interest rates are currently on the rise mainly on account of high oil and
commodity prices coupled with high inflation. Also, problems due to
erratic monsoon and its corresponding effect on agriculture production,
along with higher-than-anticipated money supply growth, are putting an
upward bias to the yield curve across maturities. The impact of this rising
interest rates on the banks will lead to reprising of the portfolio of the
banks on both asset and liability sides. The banks’ net interest margin
may be affected as liabilities in general get reprised faster than its assets.
As a whole, banks must develop a short, medium and long term views on
interest rates in their corporate planning exercise, wherein adverse impact
of a rising interest rate scenario can be taken care of through advance
planning. Such measures vary from bank to bank depending on the
composition of the portfolio.
Opportunity for Private Sector
This is the most visible change in Indian financial system. With the
emergence of new private sector banks and the entry of foreign banks, the
Indian banking is quickly getting drawn into globalize financial system.
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Impact of Globalization on Indian Banking Sector
Emphasis on Professionalism
The spirit of competition and the emphasis on profitability are also
driving PSBs towards greater profit-orientation from the socialistic
approach that was followed earlier. In general, it seems that the
emergence of new private banks and the increased participation of foreign
banks have increased professionalism in the banking sector as a whole.
One of the major forces of globalization in India has been in the growth
of outsourced IT and business process outsourcing (BPO) services. The
last few years have seen an increase in the number of skilled
professionals in India employed by both local and foreign companies to
service customers in the US and Europe in particular. Taking advantage
of India’s lower cost but educated and English-speaking work force, and
utilizing global communications technologies such as voice-over IP
(VOIP), email and the internet, international enterprises have been able to
lower their cost base by establishing outsourced knowledge-worker
operations in India.
Healthy Competition would Increase
Competition has clearly increased with the Herfindahi Index for advances
and assets dropping by over 28% and 20% respectively during 1991-92
and 2000-01. Over the period, The State Bank of India, the largest Indian
Bank, witnessed a decline in asset market share from 28% to 24% while
its loan market share dropped from 27% to 22%. The deposit share, on
the other hand, stayed pretty much the same at 23%. The asset, loan and
deposit shares of the top 10 banks all fell from close to 70% to below
39
Impact of Globalization on Indian Banking Sector
60%. Nevertheless, the PSBs still enjoy a preeminent position in the
Indian banking sector today, accounting for over 80% of deposits and
credit. There is, however, a noticeable trend of private banks gradually
eroding the market share of the public sector.
Software Packages for Banking Applications in India had their
beginnings in the mid 80''s. This move was spurred on by RBI and the C
Rangarajan Committee Report which decided to computerize the Indian
Banking branches in a limited manner. This move was aimed at
promoting competition and allows an easy assessment of relative vendor
capabilities. Gradually, even those who opposed computerization in
government and banks changed their perspective and within a few years
our country became a superpower in Information technology. The early
90s saw a fall in hardware prices and the advent of cheap and inexpensive
but high-powered PCs and servers. Banks went in for what was called
Total Branch Automation (TBA) Packages. We are now at the point when
we have accepted the use of computers in every sphere of our activity
today.
Opportunities In Today’s Scenario
The entire banking sector has undergone a restructuring during recent
years as a result of Globalization. The I-T revolution has made it possible
to provide ease and flexibility in operations to customers thus making life
simpler and easier. Rapid strides in information technology have, in fact,
redefined the role and structure of banking in India. Further, due to
exposure to global trends after Information explosion led by Internet,
customers - both Individuals and Corporate - are now demanding better
services with more products from their banks. The financial market has
40
Impact of Globalization on Indian Banking Sector
turned into a buyer's market. Banks are also coping and adapting with
time and are trying to become one-stop financial supermarkets. The
market focus is shifting from mass banking products to class banking
with the introduction of value added and customized products.
Public Sector Banks like SBI have also started focusing on this area. SBI
plans to open 100 new branches called Personal Banking Branches (PBB)
this year.
Customized banking products, such as Investment Advisory Services;
photo-credit cards; cash Management services; Investment products and
Tax Advisory services have already been introduced by a few foreign and
private sector banks. A few banks have gone in to market mutual fund
schemes.
The bank of the future has to be essentially a marketing organization that
also sells banking products. New distribution channels are being used;
more & more banks are introducing services like disbursement and
servicing of consumer loans, Credit card business. Direct Selling Agents
(DSAs) of various Banks go out and sell their products. They make house
calls to get the application form filled in properly and also take your
passport-sized photo. Home banking has already become common. Now,
you can order a draft or cash over the phone or internet and have it
delivered home. “ICICI was the first among the new private banks to
launch its net banking service, called Infinity”. It allows the user to access
account information over a secure line, request cheque books and stop
payment, and even transfer funds between ICICI Bank accounts. Citibank
has been offering net banking to customers.
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Impact of Globalization on Indian Banking Sector
Chapter 7- Challenges to Banking due to Globalization
Globalization “a Challenge as well as an Opportunity”
The benefits of globalization have been well documented and are being
increasingly recognized. Globalization of domestic banks has also been
facilitated by tremendous advancement in information and
communications technology. Globalization has thrown up lot of
opportunities but accompanied by concomitant risks. There is a growing
realization that the ability of countries to conduct business across national
borders and the ability to cope with the possible downside risks would
depend, inter-alia, on the soundness of the financial system and the
strength of the individual participants. Adoption of appropriate
prudential, regulatory, supervisory, and technological framework on par
with international best practices enables strengthening of the domestic
banking system, which would help in fortifying it against the risks that
might arise out of globalization.
In India, we had strengthened the banking sector to face the pressures that
may arise out of Opening up of the frontiers for globalization by adopting
the banking sector reforms in a has to necessarily follow a carefully laid
out policy. As evidenced in our country, we took to reforms in early
nineties, strengthened the banking system, opened up in calibrated
manner, which followed the twin governing principles of allowed the
competition to sink in and tone up the efficiency and service quality.
42
Impact of Globalization on Indian Banking Sector
The entire reform process the content, pace and sequencing, was
undertaken in such a manner that change was achieved in a non-
disruptive progress and consultative process manner and the result is
indeed very evident. The market participants and the regulator act in
tandem to bring about resilience in the financial system, shoring up the
confidence levels which are imperative for tapping the fruits of
globalization.
Global challenges in banking:
Recently a few broad challenges faced by the Indian banks in the
following areas viz. enhancement of customer service; application of
technology; improvement of risk management systems; implementation
of new accounting standards; enhancement of transparency & disclosures;
and compliance with KYC aspects. If we were to identify a few global
challenges which banks face today, I am sure we would cover some
common ground. Hence it can be said that, The global challenges which
banks face are not confined only to the global banks. These aspects are
also highly relevant for banks which are part of a globalize banking
system. Further, overcoming these challenges by the other banks is
expected to not only stand them in good stead during difficult times but
also augurs well for the banking system to which they belong and will
also equip them to launch themselves as a global bank.
The Indian banking sector is currently redefined as it faces myriad
challenges and opportunities, especially after 2009, when they will be
fully exposed to competition from here global counterparts. Banks are
43
Impact of Globalization on Indian Banking Sector
bracing themselves to face the competition through the adoption of novel
technology and by strengthening their capital base. They are minimizing
their Non Performing Asset (NPAs), bringing down operating cost,
enhancing corporate governance and alignments, undertaking
organizational restructuring and sharpening their customer-centric
initiatives. Consolidation through the merger and acquisition route to
effectively compete with large global banks may not be far off, when
viewed against such preparedness and positive signs from regulators.
Technology is clear a prerequisite for growth and scale.
Overcoming Challenge
Development in technology also offer potential opportunities for banks to
develop and improve their retail distribution channels. Coming to
important trends in India, ICICI and several other DFIs have made
inroads into universal banking. The opening up of the insurance sector
has provided ample opportunities for the banks. ICICI Bank, HDFC
Bank, UTI Bank and several other foreign banks have exploited the
highly profitable end of banking business i.e. the retail segment.
Globalization brings new technology. But today, almost no advocate of
globalization is calling for selectivity. For instance Coca-Cola, Pepsi
were welcomed in country even though they offered little in terms of new
technology. The same can be said of advertising companies and
manufacturers of consumer non-durable goods like soap, detergent,
cereals toothpaste etc.
According to Chris Patten, Chancellor of University of Oxford and
former Governor of Hong Kong globalization that triggered the flow of
investments and growth in the developing nations brought millions out of
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Impact of Globalization on Indian Banking Sector
poverty, particularly in India and China. After the Indian economy
opened up, the level of poverty in the country declined, and had the
reforms been pursued further and faster, the results would have been
better. The untapped potential of the economy remained and there was
immense scope for improvement in the bureaucracy and labor reforms in
order to sustain the economic reforms.
Technology Infusion and Up gradation Challenges
Reluctance to adopt the best practices envisaged by the standard CBS
packages has forced them to resort to heavy customization, leading to
reduced effectiveness and efficiency of the solution. Many large banks
have confined the CBS facility to only 20% or 30% of their branches with
the justification that it will cover 70% to 80% business of the bank. This
has deprived the mass customers of rural branches of the fruits of modern
technology.
Underutilized and unknown to many, there exists a huge potential at the
bottom of the pyramid for banks. It is proved that convenient and anytime
banking channels like Automated Teller Machines serve as good avenues
for the banking system to procure large amount of cash stacked by the
rural folk. It calls for some out-of-the-box solutions to achieve cost-
effective results. Smart cards can come to the help of the remote villages.
Perhaps, the true spirit of financial inclusion can be achieved only when
banks use modern technology extensively.
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Impact of Globalization on Indian Banking Sector
Conclusion
“Benefits reaped by Indian Banking sector as a result of globalization
is much more than the setbacks”
To conclude, it can be said that unfortunately, several concerns related to
the banking sector still remain. The chief among these is the matter of
ownership and control. In the near future, India will be forced to apply
the norms of developed countries to the Banking Industry. Consequently,
many Indian banks (including some of the biggest) will show very poor
return ratios and dozens of banks will go bankrupt. Thus, it becomes
imperative that the Banking Industry should streamline itself and become
more compatible with global norms in the fields of operation and
services.
Globalization is a theoretical construct. Its open to various meanings and
inflection. It can be described positively, negatively to describe complex
process in the economy, culture and everyday life. Globalization has
caused suffering to domestic industry, economic crisis in some countries.
Globalization created new risks as well as opportunities. Globalization is
integration of various markets of world into an international market.
Indian Banks have huge financial resources at their disposal. Indian banks
started with aggregate deposits of about 5000 Crores in the Sixties which
increased to 10 Lakh Crores this millennium. This denotes a 200-
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Impact of Globalization on Indian Banking Sector
hundred-fold growth in three decades. A major tool which banks have at
their disposal is our knowledge capital-something which is being grossly
under utilized currently. This is an extremely valuable type of capital. In
banking they are short of intangible assets. Our knowledge capital is quite
crucial to the success of banking in India. For this banks cannot garner it
from outside; neither can they go in for a public issue to mobilize
intangible assets.
Therefore banking employees have to embrace the need for higher
learning and better knowledge. Banking in India has immense potential
given the population figures in our country. With a little effort, careful
planning and timely legislation this industry can be brought on par with
the best banks in the world. NRI look forward to new business
opportunities in a globalize India. Another outcome of globalization has
been a huge increase in salaries of senior mangers, accountants, lawyers
and public relation personnel working for MNCs. For the IT literate, job
opportunities have plentiful, and there are opportunities to live and earn
abroad. For the English speaking upper middle class, this has come as
boon.To an end note it can also be said that thorough instant transfers, the
banking sector has facilitated enormous benefits in terms of convenience
and efficiency.
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Impact of Globalization on Indian Banking Sector
48