Strains and Challenges faced by Indian Banking Sector

Liberalisation process has increasingly exposed Indian Industry to international competition and banking being a service industry is also not an exception. Banking Sector in India too faces same strains and challenges at local, national and international level.

Indian Banks, functionally diverse and geographically widespread, have played a crucial role in the socio-economic progress of the country after independence. However, the growth led to strains in the operational efficiency of banks and the accumulation of non-performing assets (NPA’s) in their loan portfolios.

Banks face increasing pressure to stand out from the crowd. On the Internet, this means offering your target customers an increasingly broader range of services than your competitors and that too in unique way.

All this has resulted in a challenge to managers of banks to develop the right mix of acquired and internally grown IT applications which suits customer’s expectations.

Banking sector reforms and liberalisation process raised many challenges before Indian Banks and for sustainable development it has become necessary to face these challenges effectively:

Intense Competition: The RBI and Government of India kept banking industry open for the participants of private sector banks and foreign banks. The foreign banks were also permitted to set up shop on India either as branches or as subsidiaries. Due to this lowered entry barriers many new players have entered the market such as private banks, foreign banks, non-banking finance companies, etc. The foreign banks and new private sector banks have spearheaded the hi-tech revolution. Heavy weight foreign banks with huge base, latest technology innovative and globally tested products are spreading their wings and wooing away customers form other banks. For survival and growth in highly competitive environment banks have to follow the new “Guru Mantra” of prompt and efficient customer service, which calls for appropriate customer centric policies and customer friendly procedures.

Technological Up gradation: Already electronic transfers, clearings, settlements have reduced translation times. To face competition it is necessary for banks to absorb the technology and upgrade their services. However use of High-Tech sophisticated technology leaves the predominantly rural, poor and even illiterate mans in the lurch to which the level of automation and efficiency of services are immaterial.

Privacy and Safety: Among the most important aspects, of savings, i.e., safety liquidity and profitability, safety has to be accorded top most priority. The safety aspect assumes more significance in the emerging scenario as the economic loss caused internationally by these types of crimes might risk area and any lacunae is safety would result in erosion of confidence and  the same might possibly paralyse the entire network. The areas among other things, which might endanger security in e-banking can be:

  • Changes in input data such as changing the amount in ledges, increasing the limits in accounts or face value of cheaques. Though these trends could be detected consequently, prevention is a major problem with these types of crimes.
  • Use of stolen or falsified cards in ATM machines.
  • Computer forgery could be committed by way of gaining access to other account, deliberate damage through viruses on data stored in computers. In this case, same criminals might gain entry into the computers and cause damage to the system. This apart, another through which security and privacy are maintained. If a hacker has found out the password, he can cause havoc to the entire network. Also, if the password is stolen money could be transferred from one account to another.
  • Software privacy is another area of potential danger faced by the banking industry. In this the entire software could be stolen. If this is done, the hackers could operate a parallel network.

Human Resources Management: In the recent past the human resource Policies in banks were mainly guided by the comcept of permanent employment and its necessary concomitants of creating career paths, terminal benfits, etc. for the employees. In today’s fast-changing world of employee mobility both horizontally and vertically and value systems, the public sector banks need to hire the right talent at market related compensation and to shed surplus manpower/staff. Thus many banks are going for URS schemes to reduce the burden of excessive staff. Schemes like VRS are going to change the nature of workforce with many senior and experienced persons opting for it.

The key elements that shall provide a competitive edge to banking sector will not be physical assets but knowledge assets and information. Therefore, banks must understand how to retain knowledge based employees and prevent them to migrating to some other organisation. Banks must believe in people, customer orientation, and continuous improvement of excellence. Therefore it becomes necessary for banks to encourage all employees to take risks and work towards continuous improvements and breakthroughs.

Successful banks overcoming the challenges will be those that harness technology in a customer friendly yet cost effective way. This requires enormous internal and external management and the crux of the solution lies in blending human resources with information technology.