Article on Indian Banking Sector- “Innovation in Banking”

Innovation derives organization to grow, prosper & transform in sync with the changes in the environment, both internal & external. Banking is no exception to this. In fact, this sector has witnessed radical transformation of late, based on many innovations in products, processes, services, systems, business models, technology, governance & regulation. A liberalized & globalized financial infrastructure has provided had provided an additional impetus to this gigantic effort.

The pervasive influence of information technology has revolutionaries banking. Transaction costs have crumbled & handling of astronomical brick & mortar structure has been rapidly yielding ground to click & order electronic banking with a plethora of new products. Banking has become boundary less & virtual with a 24*7 model. Banks who strongly rely on the merits of ‘relationship was banking’ as a time tested way of targeting & servicing clients have readily embraced Customer Relationship Management (CRM), with sharp focus on customer centricity, facilitated by the availability of superior technology. CRM has, therefore, has become a new mantra in service management, which in both relationship based & information intensive.

Thanks to the regulatory changes & financial innovation, large banks have now become complex organizations engaged in wide range of activities in the US & some parts of Europe. Banking is now a one-stop provider with a high degree of competition & competence. Banking has become a part of financial services. Risk Management is no longer a mere regulatory issue. Basel-2 has accorded a primacy of place to this fascinating exercise by repositioning it as the core banking. We now see the evolution of many novel deferral products like credit risk management tool that enhances liquidity & market efficiency. Securitization is yet another example in this regard, whose strategic use has been rapidly rising globally. So is outsourcing.

The retail revolution with accent on retail loans in the form of housing loans & Consumer loans literally dominating the banking globally is yet another example of product & service innovation. Various types of credit & debit cards & indeed e-cash itself, which has the potential to redefine the role of monetary authorities, are some more illustrious examples.

Need to Push Full Throttle Ahead:

Increasing knowledge among societies is forcing the banks to adopt international best practices to remain in business. Important dimensions of change are market, customers, competition, technology & society. Banks should focus beyond technologies and geographies to accelerate growth. Indian banking sector has adopted many dynamic innovations but still some more are needed like risk management, e-commerce etc. The new game requires new strategies with an accent on innovational transformation.

Two roads diverged in a wood, and I

Took the one less traveled by,

And that has made all the difference.

–   Robert Frost

It is Customary to describe the unfolding world as of unprecedented change, of a whirlwind of ideas, of explosive growth of since-based technology. Prospects for continued escalation of change are awesome: the world’s knowledge based now doubles every eight years, but by 2020, the doubling time is estimated to be slashed to 76 days. A strong momentum and apparent inevitability of globalization strongly suggest an accentuation of the pace of development. Such contextual changes recd. An impetus through increasing integration of the productive process, rapid technological advances, splashing of legal & institutional barriers to global trade & a smother flow of global capital.

Michale E Porter demonstrated that in an industry, the nature of the competition is embodied in the treat of new extent, the treat of substitute product or services, the bargaining power of suppliers/ buyers and the rivalry among existing competitors. The significance of introducing a steady stream of innovative products for banks emanates from its potential to salubriously impact all these factors.

Management theories & practice are characterized by a bewildering diversity of opinions. But the view, that the challenge to innovate is urgent & continuous, enjoys a fair measure of consensus across the development spectrum. In the present world, where all elements are critically in ferment, launching of innovative products by strong business analytic tools, optimized processes & a modern centralized IT system is central to ensuring short-term survival, achieving long-term prosperity & eventually gaining competitive advantages.

An appropriate approach to the growth matrix in an era of change, where the convergence or real & virtual worlds has become a part of our daily lives, requires a clear understanding of micro-economic framework, education & training policies, trade & competition policy & socio-economic milieu. To what extent can difference in innovation explained the observed difference in growth, profitability & financial performance of industries & even firms within the same industry? How has innovation be instrumental in influencing the Indian experience of development of banks? What lesson can be gleaned from the recent Indian experience & that of other countries? What should be the road map for innovation? This article attempts a brief look at some such issues of growing concerns & provides insight into the impact of the driving forces and factors, behind innovation, on Indian with particular reference to banks.

Discontinuity — The New Disequilibria:

Everything in business is always in flux & flow. Engel’s stressed, “equilibrium is inseparable from motion & all equilibrium is relative & temporary”. The quickening of change (Table 1), however, caused discontinuity & ripples of concern on the boardrooms. But it is necessary to realize, as powerfully argued by Gary Hamel, “We stand on the threshold of a new age — the age of revolution. For the first time in history we can work backward from our imagination rather than forward from out past”.

Change Impact on Business
Markets Local to Global – Investments in Identifying

& Servicing New markets

Customers Acceptance to delight – Listening to Consumers.

– Knowing &Understanding

their needs.

– Fulfilling Customer’s


Competition – Increased Competition

– Shortage to surplus Economy

– Squeeze in margins leading

to cost cuttings.

– Consolidating &


Technology Gradual change to quantum Change – Innovational Shareholders


Society Demanding Rights – Corporate Governance

– Concern for social


Historically, Changes in society have always been preceded by the flow of ideas, which provide the cutting Edge of development. In contemplating the challenges, the approaches of those enterprise, which successfully weathered the challenges of this volatile era, shows that innovation is not only power but also the key to sustained economic success. While the debate over innovation in the world of business has raged for long, innovation has now rapidly emerged as a critical lament of the growth strategy.

Despite the multi-layered any multi-dimensional aspect of ubiquitous change, most organization still disconcertingly confine themselves to incremental improvement & innovation without trying to alter the rules of the game, bring about breakthrough innovation. What is prognostically alarming is that most companies in the given industry or market tend to follow the same unwritten rules for conducting business with limited deviations from de facto strategies. This is reflected by the fact that though agglomeration & the location of innovative activities are closely related, important sectoral clusters like textiles (Triupur), diamond-cutting (Surat), hosiery (Ludhiana), call centers (Gurgoan), auto-companies & automobiles (Chennai), with the notable exception of banglore (IT) are largely confined to incremental innovations.

Further the blistering pace of change quickly renders existing strategies obsolete necessitating frequent course corrections. An urgent policy appraisal is, therefore, impulses in banks by radical and discontinuous innovative measures for enhanced performance in this turbulent era.

‘The Innovation Imperative — Accelerating Growth beyond Technologies and Geographies:’

Traditionally, innovation has been defined with focus on traditional concepts of industry research & development & the commercialization of new products and/or process technologies. But the definition of innovation as “acceptance of & readiness to change across the organization, dedication to continuous improvement processes, willingness to experiment and explore novel ways, building new relationship & alliance, establishing new approaches to markets, channels, customers, pricing strategies & new & varied approaches to organization, measurement and performance measurement” is generally a acceptable.

The history of the growth of financial development, as indeed of all other development, is intertwined with the growth of innovation. Compelling & incontrovertible cross-country evidence prove that successful innovation is crucial to the competitive edge of all businesses. But innovation is particularly important for banking & finance companies. Innovation, which transcends invention, represents the point of convergence of invention & insight. Organizational ethos needs to stress innovation as a key driver of growth that surprises & delights the customer with new, differentiated & relevant benefits. This is not a cliche but defining characteristics of the modern cooperate saga.

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