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Banking Industry to Witness a Shift in Structure
Banking assets in India account for % of the nation’s financial assets and play a crucial role in economic development. It is tightly regulated by the central bank that aims for growth through financial inclusion and priority sector lending.
The Indian banking system is on an upward growth trajectory and is expected to be the third largest banking industry worldwide by 2020. However, this goal can only be achieved through liberalization norms as proposed by RBI that would focus on issuance of on tap banking licenses, specialized banking licenses, encouraging consolidation, improving operational performance of small banks and nationalized banks, complying with global regulations and increasing overseas presence.
The Indian banking system follows a universal banking model where bankers are present across all segments and serve all customers. Owing to the changing needs, demands and demographics of the Indian population, the business model of the banking system needs a shift to address specific and unique financial needs of the consumer. In addition, young consumers prefer banks that use multiple distribution channels that are more accessible and consume minimum time and effort. Online banking and mobile banking technology may prove to be disruptive for traditional banking methods, as it is gaining popularity among Indians.
Owing to conservative risk management practices adopted by the Central Bank of India, Indian banks stood strong during the global financial turmoil, while the banking industry in US and Europe collapsed. However, rising non-performing assets ratio is a growing cause of concern to the banking industry. Indian banks are stable in terms of capital adequacy ratio and might comply fully with Basel III regulations as scheduled in 2018.
Overall, changing regulatory landscape, strong fundamentals, conservative risk management, use of updated technology, multiple distribution channels, financial inclusion, and a strong focus on customer service is expected to fuel growth in the Indian banking industry.
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