BENCHMARKING

Practices And Tools For Achieving

International Standards In Banking
Sector To Overcome The Economic Crisis
Intro…
Banking system – prime sector responsible
for rapid economic growth.
Fundamental structures and institutional
reforms since 1991.
The Narasimhan Committee laid the
foundation.
Banking sector – synonym of economic
growth.
In Downturn…
Purchasing power of 3.0% in October
2008 has declined to 0.5% in January
2009.

The Global GDP shrunk by 0.6%.

Projected to reduce by 2.8% in 2009 to

overcome the meltdown.
Channels of Crisis…
Crisis spread in two ways,
1.Financial channel
squeezing of liquidity - drying up of
overseas financing and conversion of funds
in the local market.
2.Confidence channel
corporate sector had moved back from
investing in Indian Financial Market.
Crisis continues….
Affected the Cash flow – leads to a
condition incapable to raise funds.
Industrial output came down .
Affected the GDP and Employment.
The Govt and Apex Bank responded
through Big, Aggressive and Unconventional
measures to overcome the global economic
recession.
Present State of the Indian Banking Sector
Total Assets:
82 scheduled banks – Rs 2,77,85,739
mln in 2006.
Public Sector Banks – 72.5%
Private Sector Banks – 20.2%
Foreign Banks – 7.3%
Cont…
Total Income: Rs 22,15,280 mln in 2006.
Public Sector Banks – 72.7%
Private Sector Banks – 19.5%
Foreign Banks – 7.8%
Net Profit: Rs 2,48,281.5 mln
Public Sector Banks – 66.6%
Private Sector Banks – 21.0%
Foreign Banks – 12.4%
Cont…
Infrastructure:
Rapidly increasing. As of march 2006, no of branches
operating in the country 54,346 of which
Public Sector Banks – 88%
Private Sector Banks – 11%
Foreign Banks – 1%
Maximum % of branches in rural areas- 35%
Semi-Urban area – 24%
Urban Areas – 21%
Metros – 20%
Cont…
PSBs highest no of ATMs-12608, Private 7584 and
foreign 855 ATMs.
GDP growth after reform in 1992 to 2002 is 6.0%.
During 1982 to 1992 it was 5.8%.
NPAs reduced from 14% in 1998 to 7.2% in 2004.
ROA of the banks rose from 0.4% in 1991-92 to 1.2% in
2003-04.
Business per Employee for PSBs is doubled to around
Rs 25mln in 2003-04 for the past five years.
GLOBAL ECONOMIC SLOWDOWN
AND INDIA
Financial crisis originated in US.
The ability to raise cash, i.e., liquidity has
decreased and affected the credit market.
The interest has been rising.
Leads to severe reduction in rate of lending.
Followed by decreased business investment.
CRISIS IN INDIAN BANKS
Growth rate slashed to 5.3% from 9% in the previous
year.
Severe impact on unemployment and poverty.
Downturn resulting in CA deficit, depleting foreign
exchange, Depreciating Rupee.
Lehman Brothers and Merrill Lynch had invested in
Indian Banks.
Indian Banks invested the money in the derivative
markets.
PSUs, ICICI and Axis banks were also highly affected.
Impact of Crisis in Indian Economy
Main source of liquidity for India is FDI.
Less inflow of FDI will lead to decrease in GDP.
India is not in a position to return money back.
It utilized the money in subsidizing the petroleum
products and building infrastructure.
Liquidity crunch is increasing.
Customer demand is decreasing.
Leads to reduced demand for Indian goods & services.
Indian exports are affected.
Last year, India registered a 15% decline in exports.
Cont…
Wrong impression in the minds of Indian investors.
Investors withdraw from risky markets resulted in
significant ash outflow, lead to the liquidity crunch in
stock market.
Impact on banking sector:
 Decline in for-ex reserves held by RBI.
 Fall in external value of Rupee, because FIIs converting
their Rs into $ by selling stocks.
 Shortage of foreign currency due to declined export.
 Decline in stock market indices.
THE PROGRESSIVE STEPS
 The speed of recovery in Asia much faster than western
counterparts.
 IMF declared for Global Economic Recovery till 2010.
 Significant efforts are made by Asian Countries.
 Especially India with its better economic performance.
 Both domestic and FIIs are back in action.
 FIIs invested over $ 4.2 bln in 2009, which is sign of relief
for Indian economy.
 Liquidity started moving to original position.
 Positive results have already become visible.
 Economy shall grow in the range of 6.5 to 6.7% in the fiscal
year.
Reasons of Banks Survival
The economic growth over the past few years.
Low defaulter ratio.
Absence of complex financial products.
Regular intervention by RBI.
The proactive adjustments of monetary policy.
Closed banking culture.
INDIAN ECONOMY: CHALLENGES
AHEAD
Supporting the drivers of demand to increase the
economic growth.
Boosting the flow of credits.
Managing the large govt borrowing program in 2009-
10.
Ensuring the withdrawal of injected large liquidity by
RBI.
Preserving the stability of financial system.
PLAN of ACTION
A thorough reconstruction is needed.
Apart from the growth, innovation and empowerment
is the key to success.
Profit maximization is not only the growth indicator,
but also includes
 Improving returns
 lower cost
 strengthening revenue sources
 Encouraging employees to perform more diverse
functions.
ICICI Strategy
ICICI suffered losses in both domestic and Intl
Market.
New CEO C.Kochar laid down the basics with an
emphasis on regaining customer’s confidence and
faith.
ICICI planned strategy of 4 Cs;
 Capital conservation
 Current a/c & savings a/c
 Cost control
 Capital restructuring
Measures Adopted by Global Banks
Review, Right Size and Redeploy:
 Staffing levels have not been reduced based upon
organ’tn volume decline.
 Opportunity of Review, Right Size and Redeploy.
 Excess resources can be redeploy to other areas.
 Careful review of resources and possible redeployment.
 Create confusions.
How to “Right Size”
Review of Process, Policy and use of Technology with
the peers in the industry.
Process of Benchmarking helps:
 See actual performance level of other orga’tn.
 Understanding of differences b/w orga’tn.
 Establish of reasonable goal for own performance.
 Justify the required changes.
Business Intelligence

Timely delivery of info about recent techno advances.

BI is the key building block.
BI helps in determine company’s current performance
is at par, above or below the target.
BI relates competitors performance in key areas.
Portfolio Management Approach

PM is the ongoing monitoring of portfolio soundness.

Includes periodic review of portfolio.
PM relies on tried and true credit practices.
Also from pre-defined reviews of internal and external
data from existing credits.
 Provides business, payment history, account
performance, etc.
Risk-Based Pricing
RBP – Laying down loan price according to expected
loan risk.
Borrower’s credit risk determine the accept or decline
of loan.
Higher interest rate for higher risk and vice versa.
Balanced pricing comprises 3 elements:
 Solid credit quality
 Profitability
 Portfolio growth
Cross-sell and Product Bundling

Satisfied customer go for other services from lender.

Cross-selling products are beneficial for lenders to
satisfy customers.
Common type of cross-sell products are
 Opening of deposit a/c with loan,
 Credit card to a new deposit customer.
FINDINGS & SUGGESTIONS
DISTINTIVE PRODUCTS
Banks become customer centric.
Banks developing risk mgmt techs, such as appointing
CRO overseeing credit, market and operational risks.
A few distinctive products:
 Intl Gold Debit Card
 Airport Lounge facilities
 Wealth Mgmt Services
 Net Banking
 Value Added Services
CORPORATE GOVERNANCE
Corporate governance covers a range of issues such as
protection of shareholder’s benefit and value, integrity
of a/c practices, the contol system, etc.
Measures taken by Bank:
 Prudential norms
 Capital Adequacy
 Income Recognition
 ALM and risk Management Practices
INFO TECH
Info tech support multiple delivery channels.
Benefits:
 Increased Employee satisfaction
 Lower total cost of ownership
 Greater ROI
 Reduced Operational risk
• Available techs
MS Biz Talk Server
MS .NET Framework
MS Office System
MS SQL Server
RURAL BUSINESS
Rapid growth of foreign banks is a threat to rural areas.
Micro credit is an alternative.
Micro credit decreases operational cost.
MC summit held in Washington in 1997.
MC associated with:
 Very small loans
 No collateral securities
 Borrowers are poor from rural and urban
 Loans for income generation by self employment
 NGOs contribution
CONCLUSION

Banking sector is very important for Indian economy. In

the time of global economic meltdown, if best practices
are followed in the Indian banking system, this can
provide a great opportunity to become financial super
power. If the suggestion implemented well, future of
India is dazzling and bright.