Banks have played a pivotal role in the economic development of India and in surviving the recent financial crisis. The resilience demonstrated by the banking sector has been phenomenal. Indian banks have made good progress over the last five years owing to active capital markets, vital governmental support and increased public deposit.
However, though seemingly stable, the banking sector does face an uncertain future with several challenges ahead such as increase in the interest rates on saving deposits, a more stringent monetary policy, a large government deficit, increasing inflation, increased stress in sectors like state utilities, airlines, and micro-finance, increasing infrastructure loans, and implementation of Basel III reform measures. Today banks are faced with various challenges like the accessibility, transparency, customer expectations, management of risks, growth in banking sector, global banking, and employee and customer retention.
One of the nemeses of the Indian banking sector has been inflation. Currently, the growing rate of inflation is leading to high interest rates for borrowers in the market. This will drastically affect the common man’s pocket and bring down the lending rate thereby reducing the capital investment for banks and other financial institutions and ultimately affect the overall growth for banks as well as the Indian economy at large.
Banks are striving hard to combat the competition they face from global banks. Also, the technological advancement in the field of banking is compelling them to rethink their policies and strategies. India, like other developing countries has a large section of population that has no or minimal access to banking services. And even those who do have access and are availing the benefits of banking services are difficult to satisfy because of the rising expectations of customers. This is due to the advent of Information Technology and advanced innovation in banking methods and increasing competition from foreign banks. There has been a steady rise in the number of services offered by banks and the growing emphasis on meeting customer expectations on account of increasing competitive pressure in the banking market.
The growing competitive market has put tremendous pressure on banks to abide by the internationally accepted corporate governance practices for transparency and disclosure. As per these global standards, banks are expected to be more responsive and accountable to the investors, which becomes more challenging for nationalized and private sector banks with the presence of global players in the market. All these foreign banks are large in size, technically advanced and have greater presence in the global market, enabling them to offer more and better options and services to the Indian customer.
The banking industry has undergone a remarkable and rapid transformation in the last ten years, moving away from being a transactional and customer service-oriented sector to an increasingly aggressive and competitive environment, where competition for revenue is the top priority. Long-time banking employees are not very comfortable with this sudden shift and are becoming increasingly disenchanted with the industry and often resistant to its new approach. This is not a rosy picture for the retail banking industry where employee satisfaction is equated with customer satisfaction, and retention of employees is crucial to safeguarding the customer relationship.
Thus, there is an imperative need for banks to work more on technology upgradation coupled with its integration with the overall services offered to the end customer, better management of assets and liabilities and the risks assumed therein; creating a more dynamic and challenging work culture to meet the demands of customer relationships, reputation, corporate governance and regulatory measures; focusing on internal controls, risk mitigation systems and business continuity plans to effectively mitigate possible operational risks arising out of adoption of technology which could have a potential bearing on the overall financial stability.