We have traversed through more than a decade of reforms which has provided a much needed fillip to Indian Banking Sector. Dr.Y V Reddy, Governor, Reserve Bank of India was invited to address Pakistani Bankers at Karachi. His erudite address on Banking Sector Reforms in India was a treatise for scholars and policy makers in banking in Pakistan. We are happy to reproduce his address in this issue for the benefit of our readers. The power of technology has fuelled a change and made an impact on the working of banking sector. It has also metamorphosed the marketing, pricing, designing and distribution of financial products and services which ultimately have resulted in improving in efficiency and cost effectiveness. Mr.S C Gupta, Chairman & Managing Director, Punjab National Bank in his article “Internet Banking – Changing Vistas of Delivery Channel” under CEO’s perspective, highlights the importance of internet banking which will be the most popular banking delivery channel in days to come. This issue is also packed with Mr.Sivaram Prasad’s article on “ Is ATM cost Effective?” measuring the costing of ATM operations, break-even, etc. Shri Santosh Patnaik sketches the need for M & As of Indian banks in his article “Consolidate or Perish”. Dr.R K Srivastava elucidates the rise of FII inflows into India and its impact in his article “FII inflows into India: A Dilemma” . Shri P V Anantha Bhaskar writes about how Performance Management System can be used as an effective tool by banks to increase productivity. The discerning readers would observe a tonal change eluerging in this issue of the Bulletin. The new editorial team is committeed to make your reading visually more interesting and content- wise more satisfying. This endeavour would manifest itself in forthcoming issues. The readers suggestions and views as to what changes they would like to see in the Bulletin would be most welcome. Happy reading, EDITORIAL H N SINOR www.iba.org.in 1 IBA BULLETIN JULY 2005
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We have traversed through more than adecade of reforms which has provided amuch needed fillip to Indian Banking Sector.Dr.Y V Reddy, Governor, Reserve Bank ofIndia was invited to address PakistaniBankers at Karachi. His erudite address onBanking Sector Reforms in India was atreatise for scholars and policy makers inbanking in Pakistan. We are happy toreproduce his address in this issue for thebenefit of our readers.
The power of technology has fuelled achange and made an impact on theworking of banking sector. It has alsometamorphosed the marketing, pricing,designing and distribution of financialproducts and services which ultimatelyhave resulted in improving in efficiency andcost effectiveness. Mr.S C Gupta,Chairman & Managing Director, PunjabNational Bank in his article “InternetBanking – Changing Vistas of DeliveryChannel” under CEO’s perspective,highlights the importance of internetbanking which will be the most popularbanking delivery channel in days to come.
This issue is also packed with Mr.SivaramPrasad’s article on “Is ATM costEffective?” measuring the costing of ATM
operations, break-even, etc. ShriSantosh Patnaik sketches the need forM & As of Indian banks in his article“Consolidate or Perish”. Dr.R KSrivastava elucidates the rise of FIIinflows into India and its impact in hisarticle “FII inflows into India: ADilemma”. Shri P V Anantha Bhaskarwrites about how PerformanceManagement System can be used asan effective tool by banks to increaseproductivity.
The discerning readers would observe atonal change eluerging in this issue ofthe Bulletin. The new editorial team iscommitteed to make your readingvisually more interesting and content-wise more satisfying. This endeavourwould manifest itself in forthcomingissues. The readers suggestions andviews as to what changes they wouldlike to see in the Bulletin would be mostwelcome.
Happy reading,
ED
ITO
RIA
L
H N SINOR
www.iba.org.in1IBA BULLETIN
JULY 2005
contributorsco
nte
nts
CEO’s PERSPECTIVE
5
Dr. Y. V. Reddy, Governor, Reserve Bank of India at theInstitute of Bankers of Pakistan, Karachi on May 18, 2005
Banking Sector Reforms in India :
An Overview
Dr. Y.V. Reddy
Mr. S.C. Gupta, Chairman & Managing Director of PubjabNational Bank, is M.Com., CAIIB and started his banking careerfrom State Bank of India in 1966.
Internet Banking – Changing Vistas
of Delivery Channel
S.C. Gupta
LEADER SPEAKS
EXPERTS VIEWS
Mr. P. Siva Rama Prasad is presently working as ChiefManager (BPR Project), State Bank of India, Mumbai. Hehas been working in State Bank of India since May 1980and has handled various assignments.
Is ATM Cost Effective?
P. Siva Rama Prasad
Mr. Anantha Bhaskar is presently working as a Managerin Development Credit Bank Ltd., Hyderabad. He is anMBA (Finance) from IGNOU, New Delhi. He is a Licentiatein Insurance.
Performance Management System in
Banks
P. V. Anantha Bhaskar
FII Inflows into India : A Dilemma
Dr. R.K. Srivastava
eEnoer - Keb[
Shri Santosh Patnaik is Officer, United Bank of India,Bhubaneshwar.
◗ The Centre has requested states todraw the market borrowingprogramme schedule for the financialyear 2005-06 as per therecommendations of the 12th FinanceCommission. ( FE 2/5) �
Prepared by Smt. Jayasree Menon
IBA BULLETINJULY 2005
4
Banking SectorReforms in India :
An Overview
room for complacency."
Taking account of the nature of audience here and
following the example of Governor Husain, who
spoke eloquently on the banking sector reforms
in Pakistan in January this year, I have chosen to
present an overview of banking sector reforms in
India.
It is useful to very briefly recall the nature of the
Indian banking sector at the time of initiation of
financial sector reforms in India in the early 1990s.
The Indian financial system in the pre-reform
period (i.e., prior to Gulf crisis of 1991), essentially
catered to the needs of planned development in a
mixed-economy framework where the public
sector had a dominant role in economic activity.
The strategy of planned economic development
required huge development expenditure, which
was met through Government’s dominance of
ownership of banks, automatic monetization of
fiscal deficit and subjecting the banking sector to
large pre-emptions - both in terms of the statutory
holding of Government securities (statutory
liquidity ratio, or SLR) and cash reserve ratio (CRR).
Besides, there was a complex structure of
administered interest rates guided by the social
concerns, resulting in cross-subsidization. These
not only distorted the interest rate mechanism but
also adversely affected the viability and
profitability of banks by the end of 1980s. There is
perhaps an element of commonality of such a
‘repressed’ regime in the financial sector of many
banking fraternity. I would like to congratulate
Pakistan for its impressive economic performance.
Governor Husain, in his address at the Seminar on
Management of Pakistan Economy in Lahore, a few
weeks ago, had this to say about recent economic
performance of Pakistan and challenges ahead, in
his characteristically candid fashion:
"Economic growth rate has reached a solid 6 per cent
plus, inflation has been contained to 5 per cent which
has only recently started rising, exchange rate has
been stabilized, fiscal deficit has been drastically
reduced, domestic interest rates have declined
dramatically, international reserves have jumped
twelve times their 2000 level, debt ratios have fallen
significantly and investment is booming."
He further added that,
"Pakistan has achieved macroeconomic
stability, introduced structural reforms,
improved economic governance
and resumed the path for
high growth rates. But
there is no
Leader Speaks
In the currentscenario, banksare constantlypushing thefrontiers of riskmanagements.Compulsionsarising out ofincreasingcompetition, aswell as agencyproblemsbetweenmanagement,owners and otherstakeholders areinducing banksto look at neweravenues toaugmentrevenues, whiletrimming cost.Consolidation,competition andrisk managementare no doubtcritical to thefuture of bankingbut I believe thatgovernance andfinancialinclusion wouldalso emerge asthe key issues fora country likeIndia, at this stageof socio-economicdevelopment
Dr. Y. V. Reddy
Governor Ishrat Husain and
distinguished bankers,
At the outset, let me express my
gratitude to Governor Husain for
inviting me to visit Karachi and
meet with you. I consider it an
honour to be here amidst the
5IBA BULLETINJULY 2005
IBA BULLETINJULY 2005
6
”
”
emerging market economies. It follows that
the process of reform of financial sector in
most emerging economies also has
significant commonalities while being
specific to the circumstances of each country.
A narration of the broad contours of reform
in India would be helpful in appreciating
both the commonalities and the differences
in our paths of reforms.
Contours of Banking Reforms in India
First, reform measures were initiated and
sequenced to create an enabling
environment for banks to overcome the
external constraints - these were related to
administered structure of interest rates, high
levels of pre-emption in the form of reserve
requirements, and credit allocation to certain
sectors. Sequencing of interest rate
deregulation has been an important
component of the reform process which has
imparted greater efficiency to resource
allocation. The process has been gradual and
predictated upon the instituion of
prudential regulations for the banking
system, market behaviour, financial opening
and above all the underlying
macroeconomic conditions. The interest
rates in banking system have been largely
deregulated except for certain specific
classes; these are : savings deposit accounts,
Non-Resident Indian (NRI) deposits, small
loans up to Rs. 2 lakh and export credit. The
need for continuance of these prescriptions
as well as those relating to priority sector
lending have been flagged for wider debate
in the latest annual policy of the RBI. However,
administered interest rates still prevail in
small savings schemes of the Government.
Second, as regards the policy environment
of public ownership, it must be recognised
that the lion’s share of financial
intermediation was accounted for by the
public sector during the pre-reform period.
As part of the reforms programme, initially,
there was infusion of capital by the
Government in public sector banks, which
was followed by expanding the capital base
with equity participation by the private
investors. The share of the public sector
banks in the aggregate assets of the
banking sector has come down from 90 per
cent in 1991 to around 75 per cent in 2004.
The share of wholly Government-owned
public sector banks (i.e., where no
diversification of ownership has taken place)
sharply declined from about 90 per cent to
10 per cent of aggregate assets of all
scheduled commercial banks during the
same period. Diversification of ownership
has led to greater market accountability and
improved efficiency. Since the initiation of
reforms, infusion of funds by the
Government into the public sector banks
for the purpose of recapitalisation
amounted, on a cumulative basis, to less
than one per cent of India’s GDP, a figure
much lower than that for many other
countries. Even after accounting for the
reduction in the Government's
shareholding on account of losses
set off, the current market value
of the share capital of the
Government in public
sector banks has
increased manifold
and as such what
was perceived to be
a bail-out of public
sector banks by
G o v e r n m e n t
seems to be
turning out to be
a profitable
investment for the
Government.
Third, one of the major
objectives of banking
Sequencing of interestrate deregulation has
been an importantcomponent of the
reform process whichhas imparted greaterefficiency to resource
allocation.
Addressed by Dr. Y. V. Reddy,
Governor, Reserve Bank of India at
the Institute of Bankers of Pakistan,
Karachi
on May 18, 2005
7IBA BULLETINJULY 2005
sector reforms has been to enhance
efficiency and productivity through
competition. Guidelines have been laid
down for establishment of new banks in
the private sector and the foreign banks
have been allowed more liberal entry. Since
1993, twelve new private sector banks have
been set up. As already mentioned, an
element of private shareholding in public
sector banks has been injected by enabling
a reduction in the Government
shareholding in public sector banks to 51
per cent. As a major step towards enhancing
competition in the banking sector, foreign
direct investment in the private sector banks
is now allowed up to 74 per cent, subject to
conformity with the guidelines issued from
time to time.
Fourth, consolidation in the banking sector
has been another feature of the reform
process. This also encompassed the
Development Financial Institutions (DFIs),
which have been providers of long-term
finance while the distinction between short-
term and long-term finance provider has
increasingly become blurred over time. The
complexities involved in harmonising the
role and operations of the DFIs were
examined and the RBI enabled the reverse-
merger of a large DFI with its commercial
banking subsidiary which is a major initiative
towards universal banking. Recently, another
large term-lending institution has been
converted into a bank. While guidelines for
mergers between non-banking financial
companies and banks were issued some time
ago, guidelines for mergers between private
sector banks have been issued a few days
ago. The principles underlying these
guidelines would be applicable, as
appropriate, to the public sector banks also,
subject to the provisions of the relevant
legislation.
Fifth, impressive institutional and legal
reforms have been undertaken in relation
to the banking sector. In 1994, a Board for
Financial Supervision (BFS) was constituted
comprising select members of the RBI Board
with a variety of professional expertise to
exercise 'undivided attention to supervision'.
The BFS, which generally meets once a month,
provides direction on a continuing basis on
regulatory policies including governance
issues and supervisory practices. It also
provides direction on supervisory actions
in specific cases. The BFS also ensures an
integrated approach to supervision of
commercial banks, development finance
institutions, non-banking finance
companies, urban cooperatives banks and
primary dealers. A Board for Regulation and
Supervision of Payment and Settlement
Systems (BPSS) has also been recently
constituted to prescribe policies relating to
the regulation and supervision of all types
of payment and settlement systems, set
standards for existing and future systems,
authorise the payment and settlement
systems and determine criteria for
membership to these systems. The Credit
Information Companies (Regulation) Bill,
2004 has been passed by both the Houses
of the Parliament while the Government
Securities Bills, 2004 is under process. Certain
amendments are being considered by the
Parliament to enhance Reserve Bank’s
regulatory and supervisory powers. Major
amendments relate to requirement of prior
approval of RBI for acquisition of five per
cent or more of shares of a banking company
with a view to ensure ‘fit and proper’ status
of the significant shareholders, aligning the
voting rights with the economic holding and
empowering the RBI to supersede the Board
of a banking company.
Sixth, there have been a number of measures
for enhancing the transparency and
disclosures standards. Illustratively, with a
view to enhancing further transparency, all
cases of penalty imposed by the RBI on the
banks as also directions issued on specific
matters, including those arising out of
inspection, are to be placed in the public
domain.
Seventh, while the regulatory framework
and supervisory practices have almost
converged with the best practices elsewhere
in the world, two points are noteworthy. First,
the minimum capital to risk assets ratio
(CRAR) has been kept at nine per cent i.e.,
one percentage point above the
international norm; and second, the banks
are required to maintain a separate
Investment Fluctuation Reserve (IFR) out of
profits, towards interest rate risk, at five per
cent of their investment portfolio under the
categories ‘held for trading’ and ‘available
for sale’. This was prescribed at a time when
interest rates were falling and banks were
realizing large gains out of their treasury
activities. Simultaneously, the conservative
accounting norms did not allow banks to
recognize the unrealized gains. Such
unrealized gains coupled with the creation
of IFR helped in cushioning the valuation
losses required to be booked when interest
rates in the longer tenors have moved up in
the last one year or so.
Eighth, of late, the regulatory framework in
India, in addition to prescribing prudential
guidelines and encouraging market
discipline, is increasingly focusing on
ensuring good governance through "fit and
proper" owners, directors and senior
managers of the banks. Transfer of
shareholding of five per cent and above
requires acknowledgement from the RBI and
such significant shareholders are put
through a `fit and proper' test. Banks have
also been asked to ensure that the
nominated and elected directors are
screened by a nomination committee to
satisfy `fit and proper' criteria. Directors are
also required to sign a covenant indicating
their roles and responsibilities. The RBI has
recently issued detailed guidelines on
ownership and governance in private sector
banks emphasizing diversified ownership.
IBA BULLETINJULY 2005
8
The listed banks are also required to comply
with governance principles laid down by the
SEBI - the securities markets regulator.
Processes of Banking Reform
The processes adopted for bringing about
the reforms in India may be of some interest
to this audience. Recalling some features of
financial sector reforms in India would be in
order, before narrating the processes. First,
financial sector reform was undertaken early
in the reform-cycle in India. Second, the
financial sector was not driven by any crisis
and the reforms have not been an outcome
of multilateral aid. Third, the design and
detail of the reform were evolved by
domestic expertise, though international
experience is always kept in view. Fourth,
the Government preferred that public sector
banks manage the over-hang problems of
the past rather than cleanup the balance
sheets with support of the Government. Fifth,
it was felt that there is enough room for
growth and healthy competition for public
and private sector banks as well as foreign
and domestic banks. The twin governing
principles are non-disruptive progress and
consultative process.
In order to ensure timely and effective
implementation of the measures, RBI has
been adopting a consultative approach
before introducing policy measures. Suitable
mechanisms have been instituted to
deliberate upon various issues so that the
benefits of financial efficiency and stability
percolate to the common person and the
services of the Indian financial system can
be benchmarked against international best
standards in a transparent manner. Let me
give a brief account of these mechanisms.
First, on all important issues, working groups
are constituted or technical reports are
prepared, generally encompassing a review
of the international best practices, options
available and way forward. The group
membership may be internal or external to
the RBI or mixed. Draft reports are often
placed in public domain and final reports
take account of inputs, in particular from
industry associations and self-regulatory
organizations. The reform-measures
emanate out of such a series of reports, the
pioneering ones being: Report of the
Committee on the Financial System (Chairman:
Shri M. Narasimham), in 1991; Report of the
High Level Committee on Balance of Payments
(Chairman: Dr. C. Rangarajan) in 1992; and the
Report of the Committee on Banking Sector
Reforms (Chairman: Shri M. Narasimham) in
1998.
Second, Resource Management Discussions
meetings are held by the RBI with select
commercial banks, prior to the policy
announcements. These meetings not only
focus on perception and outlook of the
bankers on the economy, liquidity
conditions, credit flow, development of
different markets and directions of interest
rates, but also on issues relating to
developmental aspects of banking
operations.
Third, we have formed a Technical Advisory
Committee on Money, Foreign Exchange
and Government Securities Markets (TAC). It
has emerged as a key consultative
mechanism amongst the regulators and
various market players including banks. The
Committee has been crystallizing the
synergies of experts across various fields of
the financial market and thereby acting as a
facilitator for the RBI in steering reforms in
money, government securities and foreign
exchange markets.
Fourth, in order to strengthen the
consultative process in the regulatory
domain and to place such a process on a
continuing basis, the RBI has constituted a
Standing Technical Advisory Committee on
Financial Regulation on the lines similar to
the TAC. The Committee consists of experts
drawn from academia, financial markets,
banks, non-bank financial institutions and
credit rating agencies. The Committee
examines the issues referred to it and advises
the RBI on desirable regulatory framework
on an on-going basis for banks, non-bank
financial institutions and other market
participants.
Fifth, for ensuring periodic formal interaction,
amongst the regulators, there is a High Level
Co-ordination Committee on Financial and
Capital Markets (HLCCFCM) with the
Governor, RBI as the Chairman, and the Heads
of the securities market and insurance
regulators, and the Secretary of the Finance
Ministry as the members. This Co-ordination
Committee has authorised constitution of
several standing committees to ensure co-
ordination in regulatory frameworks at an
operational level.
Sixth, more recently a Standing Advisory
Committee on Urban Co-operative Banks
(UCBs) has been activated to advise on
structural, regulatory and supervisory issues
relating to UCBs and to facilitate the process
of formulating future approaches for this
sector. Similar mechanisms are being worked
out for non-banking financial companies.
Seventh, the RBI has also instituted a
mechanism of placing draft versions of
important guidelines for comments of the
public at large before finalisation of the
guidelines. To further this consultative
process and with a specific goal of making
the regulatory guidelines more user-friendly,
a Users’ Consultative Panel has been
constituted comprising the representatives
of select banks and market participants. The
panel provides feedback on regulatory
instructions at the formulation stage to
avoid any subsequent ambiguities and
operational glitches.
Eighth, an extensive and transparent
communication system has been evolved.
The annual policy statements and their mid-
term reviews communicate the RBI’s stance
9IBA BULLETINJULY 2005
on monetary policy in the immediate future
of six months to one year. Over the years,
the reports of various working groups and
committees have emerged as another plank
of two-way communication from RBI. An
important feature of the RBI’s communication
policy is almost real-time dissemination of
information through its web-site. The
auction results under Liquidity Adjustment
Facility (LAF) of the day are posted on the
web-site by 12.30 p.m the same day, while
by 2.30 p.m. the ‘reference rates’ of select
foreign currencies are also placed on the
website. By the next day morning, the press
release on money market operations is
issued. Every Saturday, by 12 noon, the
weekly statistical supplement is placed on
the web-site providing a fairly detailed,
recent data-base on the RBI and the financial
sector. All the regulatory and administrative
circulars of different Departments of the RBI
are placed on the web-site within half an
hour of their finalization.
Ninth, an important feature of the reform of
the Indian financial system has been the
intent of the authorities to align the
regulatory framework with international
best practices keeping in view the
developmental needs of the country and
domestic factors. Towards this end, a Standing
Committee on International Financial
Standards and Codes was constituted in
1999. The Standing Committee had set up
ten Advisory Groups in key areas of the
financial sector whose reports are available
on the RBI website. The recommendations
contained in these reports have either been
implemented or are in the process of
implementation. I would like to draw your
attention to two reports in particular, which
have a direct bearing on the banking system,
viz., Advisory Group on Banking Supervision
and Advisory Group on Corporate
Governance. Subsequently, in 2004, we
conducted a review of the recommendations
of the Advisory Groups and reported the
progress and agenda ahead.
What has been the Impact?
These reform measures have had major
impact on the overall efficiency and stability
of the banking system in India. The present
capital adequacy of Indian banks is
comparable to those at international level.
There has been a marked improvement in
the asset quality with the percentage of gross
non-performing assets (NPAs) to gross
advances for the banking system reduced
from 14.4 per cent in 1998 to 7.2 per cent in
2004. The reform measures have also resulted
in an improvement in the profitability of
banks. The Return on Assets (RoA) of the banks
rose from 0.4 per cent in the year 1991-92 to
1.2 per cent in 2003-04. Considering that,
globally, the RoA has been in the range 0.9 to
1.5 per cent for 2004, Indian banks are well
placed. The banking sector reforms also
emphasized the need to review the
manpower resources and rationalize the
requirements by drawing a realistic plan so
as to reduce the operating cost and improve
the profitability. During the last five years, the
business per employee for public sector
banks more than doubled to around Rs.25
million in 2004.
Continuity, Change and Context
We lay considerable emphasis on appropriate
mix between the elements of continuity and
change in the process of reform, but the
dynamic elements in the mix are determined
by the context. While there is usually a
consensus on the broad direction, relative
emphasis on various elements of the process
of reform keeps changing, depending on the
evolving circumstances. Perhaps it will be
useful to illustrate this approach to
contextualising the mix of continuity and
change.
The mid-term review in November 2003,
reviewed the progress of implementation
of various developmental as well as
regulatory measures in the banking sector
but emphasised facilitating the ease of
transactions by the common person and
strengthening the credit delivery systems,
as a response to the pressing needs of the
society and economy. The annual policy
statement of May 2004 carried forward this
focus but flagged major areas requiring
urgent attention especially in the areas of
ownership, governance, conflicts of interest
and customer-protection. Some extracts of
the policy statement may be in order:
"First, it is necessary to articulate in a
comprehensive and transparent manner the
policy in regard to ownership and
governance of both public and private sector
banks keeping in view the special nature of
banks. This will also facilitate the ongoing
shift from external regulation to internal
systems of controls and risk assessments.
Second, from a systemic point of view, inter-
relationships between activities of financial
intermediaries and areas of conflict of
interests need to be considered. Third, in
order to protect the integrity of the financial
system by reducing the likelihood of their
becoming conduits for money laundering,
terrorist financing and other unlawful
activities and also to ensure audit trail,
greater accent needs to be laid on the
adoption of an effective consolidated Know
Your Customer (KYC) system, on both assets
and liabilities, in all financial intermediaries
regulated by RBI. At the same time, it is
essential that banks do not seek intrusive
details from their customers and do not
resort to sharing of information regarding
the customer except with the written
consent of the customer. Fourth, while the
stability and efficiency imparted to the large
commercial banking system is universally
recognised, there are some segments which
warrant restructuring."
The annual policy statement for the current
year reiterates the concern for common
person, while enunciating a medium term
framework, for development of money, forex
and government securities markets; for
enhancing credit flow to agriculture and
IBA BULLETINJULY 2005
10
small industry; for action points in
technology and payments systems; for
institutional reform in co-operative banking,
non-banking financial companies and
regional rural banks; and for ensuring
availability of quality services to all sections
of the population. The most distinguishing
feature of the policy statement relates to
the availability of banking services to the
common person, especially depositors.
The statement reiterates that depositors’
interests form the focal point of the
regulatory framework for banking in India
and elaborates the theme as follows:
"A licence to do banking business provides
the entity, the ability to accept deposits and
access to deposit insurance for small
depositors. Similarly, regulation and
supervision by RBI enables these entities to
access funds from a wider investor base and
the payment and settlement systems
provides efficient payments and funds
transfer services. All these services, which are
in the nature of public good, involve
significant costs and are being made
available only to ensure availability of
banking and payment services to the entire
population without discrimination".
The policy draws attention to the divergence
in treatment of depositors compared to
borrowers as:
" … while policies relating to credit
allocation, credit pricing and credit
restructuring should continue to receive
attention, it is inappropriate to ignore the
mandate relating to depositors’ interests.
Further, in our country, the socio-economic
profile for a typical depositor who seeks safe
avenues for his savings deserves special
attention relative to other stakeholders in
the banks".
Another significant area of concern has been
the possible exclusion of a large section of
population from the provision of services
and the Statement pleads for financial
inclusion. It states:
"There has been expansion, greater
competition and diversification of
ownership of banks leading to both
enhanced efficiency and systemic resilience
in the banking sector. However, there are
legitimate concerns in regard to the banking
practices that tend to exclude rather than
attract vast sections of population, in
particular pensioners, self-employed and
those employed in unorganised sector. While
commercial considerations are no doubt
important, the banks have been bestowed
with several privileges, especially of seeking
public deposits on a highly leveraged basis,
and consequently they should be obliged
to provide banking services to all segments
of the population, on equitable basis."
Operationally, it has been made clear that
RBI will implement policies to encourage
banks which provide extensive services
while disincentivising those which are not
responsive to the banking needs of the
community, including the underprivileged.
The quality of services rendered has also
invited attention in the current policy. I quote
further, "Liberalisation and enhanced
competition accord immense benefits, but
experience has shown that consumers’
interests are not necessarily accorded full
protection and their grievances are not
properly attended to. Several representations
are being received in regard to recent trends
of levying unreasonably high service/user
charges and enhancement of user charges
without proper and prior intimation. Taking
account of all these considerations, it has
been decided by RBI to set up an independent
Banking Codes and Standards Board of India
on the model of the mechanism in the UK in
order to ensure that comprehensive code of
conduct for fair treatment of customers are
evolved and adhered to".
It is essential to recognise that, while these
constitute contextual nuanced responses to
changing circumstances within the country, the
overwhelming compulsion to be in harmony
with global developments must be respected
and that essentially relates to Basel II.
Basel II and India
RBI’s association with the Basel Committee
on Banking Supervision dates back to 1997
as India was among the 16 non-member
countries that were consulted in the
drafting of the Basel Core Principles. Reserve
Bank of India became a member of the Core
Principles Liaison Group in 1998 and
subsequently became a member of the Core
Principles Working Group on Capital. Within
the Working Group, RBI has been actively
participating in the deliberations on the New
Accord and had the privilege to lead a group
of six major non-G-10 supervisors which
presented a proposal on a simplified
approach for Basel II to the Committee.
Commercial banks in India will start
implementing Basel II with effect from March
31, 2007. They will adopt Standardised
Approach for credit risk and Basic Indicator
Approach for operational risk, initially. After
adequate skills are developed, both at the
banks and also at supervisory levels, some
banks may be allowed to migrate to the
Internal Rating Based (IRB) Approach.
Let me briefly review the steps taken for
implementation of Basel II and the emerging
issues. The RBI had announced in its annual
policy statement in May 2004 that banks in
India should examine in depth the options
available under Basel II and draw a road-
map by end-December 2004 for migration
to Basel II and review the progress made at
quarterly intervals. The Reserve Bank
organized a two-day seminar in July 2004
mainly to sensitise the Chief Executive
Officers of banks to the opportunities and
challenges emerging from the Basel II norms.
Soon thereafter all banks were advised in
August 2004 to undertake a self-assessment
of the various risk management systems in
11IBA BULLETINJULY 2005
place, with specific reference to the three
major risks covered under the Basel II and
initiate necessary remedial measures to
update the systems to match up to the
minimum standards prescribed under the
New Framework. Banks have also been
advised to formulate and operationalise the
Capital Adequacy Assessment Process (CAAP)
within the banks as required under Pillar II of
the New Framework.
It is appropriate to list some of the other
regulatory initiatives taken by the Reserve Bank
of India, relevant for Basel II. First, we have tried
to ensure that the banks have suitable risk
management framework oriented towards their
requirements dictated by the size and
complexity of business, risk philosophy, market
perceptions and the expected level of capital.
Second, Risk Based Supervision (RBS) in 23 banks
has been introduced on a pilot basis. Third, we
have been encouraging banks to formalize their
capital adequacy assessment process (CAAP) in
alignment with their business plan and
performance budgeting system. This, together
with the adoption of RBS would aid in factoring
the Pillar II requirements under Basel II. Fourth,
we have been expanding the area of disclosures
(Pillar III), so as to have greater transparency in
the financial position and risk profile of banks.
Finally, we have tried to build capacity for
ensuring the regulator’s ability for identifying
and permitting eligible banks to adopt IRB /
Advanced Measurement approaches.
As per normal practice, and with a view to
ensuring migration to Basel II in a non-
disruptive manner, a consultative and
participative approach has been adopted for
both designing and implementing Basel II. A
Steering Committee comprising senior
officials from 14 banks (public, private and
foreign) has been constituted wherein
representation from the Indian Banks’
Association and the RBI has also been
ensured. The Steering Committee had formed
sub-groups to address specific issues. On the
basis of recommendations of the Steering
Committee, draft guidelines to the banks on
implementation of the New Capital Adequacy
Framework have been issued.
Implementation of Basel II will require more
capital for banks in India due to the fact
that operational risk is not captured under
Basel I, and the capital charge for market
risk was not prescribed until recently.
Though last year has not been a very good
year for banks, they are exploring all
avenues for meeting the capital
requirements under Basel II. The cushion
available in the system, which has a CRAR
of over 12 per cent now, is, however,
comforting.
India has four rating agencies of which three
are owned partly/wholly by international
rating agencies. Compared to developing
countries, the extent of rating penetration
has been increasing every year and a large
number of capital issues of companies has
been rated. However, since rating is of issues
and not of issuers, it is likely to result, in effect,
in application of only Basel I standards for
credit risks in respect of non-retail exposures.
While Basel II provides some scope to extend
the rating of issues to issuers, this would only
be an approximation and it would be
necessary for the system to move to rating
of issuers. Encouraging rating of issuers
would be essential in this regard. In this
context, current non-availability of
acceptable and qualitative historical data
relevant to ratings, along with the related
costs involved in building up and maintaining
the requisite database, does influence the
pace of migration to the advanced approaches
available under Basel II.
Above all, capacity building, both in banks
and the regulatory bodies is a serious
challenge, especially with regard to adoption
of the advanced approaches. We in India have
initiated supervisory capacity-building
measures to identify the gaps and to assess
as well as quantify the extent of additional
capital which may be required to be
maintained by such banks. The magnitude
of this task, which is scheduled to be
completed by December, 2006, appears
daunting since we have as many as 90
scheduled commercial banks in India.
Concluding Observations
In the current scenario, banks are constantly
pushing the frontiers of risk management.
Compulsions arising out of increasing
competition, as well as agency problems
between management, owners and other
stakeholders are inducing banks to look at
newer avenues to augment revenues, while
trimming costs. Consolidation, competition
and risk management are no doubt critical
to the future of banking but I believe that
governance and financial inclusion would
also emerge as the key issues for a country
like India, at this stage of socio-economic
development.
Once again, let me thank Governor Husain
for his kind invitation and the audience for
their patient hearing.
Thank you. �
www.iba.org.in
Internet Banking –Changing Vistas of
Delivery Channel
CEO’s Perspective
With
consolidation of
Banks and
Technology
upgradation of the
banking platform,
Internet Banking is
bound to grow
leaps and bounds
and will emerge as
the most popular
Banking delivery
channel, within
the next few years.
With greater
emphasis been
laid on e-
governance,
Internet Banking
Channel will be a
key-facilitator with
about 40-50% of
the total banking
and financial
transactions to be
done through
Internet.
S.C. Gupta
anytime banking” has made “Internet banking” as
one of the primary delivery channel available to
present day customers.
As a business tool, Internet banking is rapidly
transforming the banking and financial world and
has made banks more efficient and fast in providing
personalized services to the end users i.e. the customer.
Internet Banking has not only transformed the “ways”
of banking but also all the aspects of the finance
and commerce. Internet banking has predominantly
become a mode of e-banking in which the Internet
offering itself as a new delivery mechanism for the
banks in reaching the customer. With the advent of
Internet Banking, there is a perceptible shift in the
customer preferences for Delivery Channel.
According to a study in USA by the Pew Internet
& American Life Project, about 44 percent of
the U.S Internet Surfers - i.e. 53 million
people use online banking.
Internet Banking in India
New Generation Private
Sector Banks
n a m e l y
Internet banking involves use of
Internet as a medium of
communication for accessing and
utilizing host of banking and
financial services. The customer’s
demand for personalized service
and the concept of “Anywhere &
ICICI Bank, HDFC bank etc. were pioneers in
introducing Internet Banking in India. They had the
advantage of technology platform and did not have
legacy systems. However with the technology
transformation of Public Sector Banks in the recent
years, many banks have started offering the Internet
Banking facility to their customers.
The number of banks offering Internet banking in
India, has increased exponentially during the last 3
years. Advancements in technology used by banks,
especially centralised Core Banking Solution, and the
growth of Internet usage is propelling the growth
of Internet Banking. This is supplemented by the
wide range of services possible through Internet
Banking, anywhere - anytime at the click of the mouse,
at Customer’s convenience.
Internet Banking - New Vistas
Besides providing the routine Banking services,
Internet Banking has enhanced capabilities like
providing Online Utility Bill Presentment and
Payment Systems, Online Share Trading, Demat and
Broking Services, Online Purchases and Auctions,
Funds Management and Payment Gateways.
Customer Expectations
While Brick and Mortar Banking is expected to
continue its presence and dominance, there is a
perceptible shift in customer preference for alternate
delivery channels like Internet Banking and ATMs.
Customers prefer 24 X 7 X 365 banking services at
their convenience and a place of their choice, and it
IBA BULLETINJULY 2005
12
”
”
While people under 40years of age prefer
online banking, oldergenerations tend to bemore hesitant towards
online banking, asmany remain stuck in
old habits
Mr. S.C. Gupta, Chairman & Managing Director of PubjabNational Bank, is M.Com., CAIIB and started his banking careerfrom State Bank of India in 1966. After brief stints at State Bankof India and Syndicate Bank, he joined Oriental Bank ofCommerce in 1972 where he made significant contributions.He was promoted as General Manager in 1994 and headedimportant portfolios like credit, international banking, creditcards, priority credit and recoveries. He was Executive Directorof Indian Overseas Bank (IOB) from December 1999 to May2001 and its CMD from May 2001 to April 2005. Under hisleadership, IOB had registered record growth in business andprofits.
He is a Director in United India Insurance Co. Ltd. and is Chairmanof the IBA’s Committee on Credit management and headed theIBA Committee on Vision - Banking 2010. Besides, he is Memberof IBA’s Managing Committee, Indian Institute of Banking andFinance, Institute for Banking Personnel Section and IBA WorkingGroup on consolidation in Indian Banking System.
should be easier for them to transact their
business. They would also prefer a single
interface which helps them in completing a
range of services. They would also prefer
confidentiality and privacy of their
transactions and accounts.
Advantages of Internet Banking for a
customer include convenience, round the
clock accessibility, instantaneous
transactions, single window view of all
accounts with drill down features, etc.
Internet Banking is a customer delight which
fulfils most of these aspirations.
Marketing Strategy of Banks
New products are evolved by the Banks, to
attract the customers towards these
alternate Delivery channels. There are also
special campaigns which give a focused
marketing thrust to increase the customer
base and usage of Internet Banking.
Incentives and Reward points are also offered
as part of these strategies.
For indian banks, there is a wide market
potential amongst Non-Resident Indians
and internet banking can be used as a
product to attract and tap this market. The
customer can be benefited by the various
funds transfer features of internet banking,
thereby facilitating instant remittances to
the beneficiaries, without the hassle of
procuring drafts, sending it by post / courier,
and follow up for its safe transit.
This will also facilitate customer growth and
potential opportunities to market their
products and services to new customer
segment.
Challenges Faced in India
➢ A majority of customers are not
computer savvy
➢ Availability of Internet Bandwidth and
connectivity is not uniform.
➢ Non availability of safe computing
facilities across the country
➢ Banks are not networked and many of
the banks still have legacy systems,
where providing Internet Banking
Solutions is not cost effective and
efficient.
➢ Customer confidence in internet
banking needs to be built.
➢ The initial cost of implementation
being high, benefits can be visible only
when we have a critical customer base
and volume of transactions. Cost of
transaction will reduce only when
customer shifts to alternate delivery
channels from the branch banking. The
cost savings in the branch banking
front will be by redeployment of
resources.
➢ Ensuring Security including privacy and
confidentiality of customer information
is a challenge.
While people under 40 years of age prefer
online banking, older generations tend to
be more hesitant towards online banking,
as many remain stuck in old habits.
While the assessment of
transaction cost vary and is
dependant on various
factors, various study
indicate that the cost of
transactions through
internet is about 1/
10th the cost of the
t r a n s a c t i o n
through the
branch.
However, this can
be realized, only
when there are
sufficient volumes
in the transactions
through the internet.
13IBA BULLETINJULY 2005
IBA BULLETINJULY 2005
14
Advantages for Banks
Some of the advantages for popularizing
this delivery channel include reduction in
transaction cost in the long run, an effective
medium to market their products and
services, faster product deployment,
customer consolidation, cost savings,
increase in productivity and introduction of
new products targeting for specific customer
segments.
Banks have discovered the benefits of online
customers and have become more
aggressive towards not only attracting
customers but retaining the existing
customers by offering incentives for online
services, and catchy advertisements. Various
studies indicate that online banking
customers are more profitable than offline
customers - they make fewer customer
service calls and are less likely to switch
banks.
Banks have gone a step further by using
internet banking as a medium for offering
internet related products.
Security Concerns
Security fears have served as deterrents to
online banking growth. Of particular concern
are threats of pharming and phishing.
Phishing is an internet fraud, through which
innocent persons are enticed to divulge their
personal information like User Identity and
Passwords, which are later on used by
scammers in unauthorised ways.
The most common method of phishing is
sending emails claiming to be from your
bank or other financial institution which are
dealing, that already has your personal
information, and you will be asked to
confirm the details by clicking a particular
link (url) provided in this fake email. This url
will take you to a fake website which will be
similar to the genuine website, and the
information provided by the customer in
the forms provided in the fake website, will
be gathered and used for committing fraud
in their accounts / credit cards or withdraw
funds unauthorisedly from these accounts.
Pharming is another internet fraud, whereby
as many users as possible are redirected
before they reach the the legitimate online
banking websites they intend to visit and
are lead to malicious ones. The bogus sites,
to which victims are redirected without their
knowledge or consent, will likely look the
same as a genuine site. But when users enter
their login name and password, the
information is captured by criminals.
As per the latest survey, phishing and
pharming are one of the top five internet
security threats. With Online Banking
catching up with the customers, the
possibility of such threats increase.
The Anti-Phishing Working Group reports
that the number of new phishing messages
rose by an average 38 percent per month in
the last six months of 2004.
Safeguards to prevent security breaches
The Web servers can be provided with
Digital Certificates and are SSL enabled,
whereby the Customer is provided with the
authenticity of visiting our genuine website.
Customers need to be forced to change the
passwords at periodic intervals
automatically by the Internet banking
application so that the possibility of misuse
is reduced..
Some Banks have provided virtual keyboard
feature for Internet Banking Login, whereby
the customer uses mouse clicks instead of
typing using the keyborad. This minimises
the risk due to keyboard grabbing.
The possibility of providing two factor
authentication mechanisms ( some thing
what they know and what they possess, like
smart cards, I Keys, Tokens etc.) are being
contemplated, by some banks which will be
subject to feasibility of smooth integration
with the application.
Awareness needs to be created among the
users as to the risks involved and measures
to mitigate the risk.
Firewalls, Intrusion Detection Systems, Access
Control and other security mechanisms have
to be strengthened for Internet Banking.
Hosting the servers in own premises in a
controlled environment, is preferable.
Periodic audits including penetration testing,
by qualified external auditors and
vulnerablity analysis need to be undertaken,
periodically.
The Internet Banking Guidelines provided
by the Reserve Bank of India, provides for
exhaustive security measures to be
implemented by the banks offering Internet
Banking Services. There are also other
initiatives like Cert-in specifically for Financial
Sector, which will go a long way in
combating the internet threats. There is a
need to create awareness among the
customers about the risks and the measures
that have been taken to combat the threats.
Conclusion
With consolidation of Banks and Technology
upgradation of the banking platform,
Internet Banking is bound to grow leaps
and bounds and will emerge as the most
popular Banking delivery channel, within the
next few years. With greater emphasis been
laid on e-governance, Internet Banking
Channel will be a key-facilitator with about
40-50% of the total banking and financial
transactions to be done through Internet.
The vast customer base of banks in India and
the growth in technology implementation
in the coming years will see India emerging
as the country having the largest number of
users of Internet Banking in the world. �
Is ATM CostEffective?
Experts Views
Today, the overall
economic
conditions remain
challenging. The
need of the hour is
to focus on the
BASICS OF
BUSINESS. We
need to focus on
managing cost
efficiencies and on
increasing profits.
As FORTUNE
MAGAZINE rightly
pointed out, we
have learnt from
the dot com bust
that: “If it does not
make cents, it does
not make sense”
P. Siva Rama Prasad
to be summarized and compared. The term also has
no universally agreed spelling. It is written as cost
benefit, cost/benefit, or cost-benefit, for instance.
Because the term "cost benefit analysis" does not
refer to any specific approach or methodology, the
business person who is asked to produce one should
take care to find out what is expected or needed. The
term covers several varieties of business case analysis,
such as:
➢ Return on investment (ROI analysis)
➢ Financial justification
➢ Cost of ownership analysis
All of these approaches to cost benefit analysis
attempt to predict the financial impacts and other
business consequences of an action. All these
approaches have the same structural and
procedural requirements for building a
strong, successful business case. They
differ primarily in terms of:
➢ How they define "cost"
and "benefit" in
p r a c t i c a l
terms
The term Cost benefit analysis is
used frequently in business
planning and decision support
activities. However, the term itself
has no precise definition beyond
the implication that both positive
and negative impacts are going
➢ Which costs and benefits are included for
analysis
➢ Which financial metrics are important for
decision makers and planners
Technology and Its Implications
Bill Gates is said to have remarked in 1994 that banks
were “DINOSAURS”
a. Since then it is more and more believed that advances
in technology will lead to the demise of banks, atleast
in the form, as we know them today. The threat is real.
But then there are opportunities created by
technologies too. And these opportunities can be
capitalised by banks, financial services companies as
also by retail organisations. All over the world, bank’s
traditional business of taking advances and lending
out the proceeds is in terminal decline. This is being
referred to as disintermediation. In America, banks
and thrifts, building societies now have 28% of the
financial services market. This is half of what they
had 20 years ago.
b. All the rich countries, even Japan is starting to
deregulate savings products. Similar forces areat work on banks’ assets. The spread ofinformation technology and the dramaticadvances in financial theory have made itcheaper for big companies to raise money inthe capital markets than from banks. Investorson the other hand, are finding new places toinvest their cash. For example, mutual funds arespreading all over the world. All these changes,coupled with lower interest rates, have resultedin reduced margins. Regional Banks in America
15IBA BULLETINJULY 2005
IBA BULLETINJULY 2005
16
”
”
CUTTING COST IS ONEWAY OF IMPROVINGRETURNS. This can be
achieved through
➢ Merger of Banksand/or
➢ Use of InformationTechnology (IT)
Mr. P. Siva Rama Prasad is presently working as
Chief Manager (BPR Project), State Bank of India,
Mumbai. He has been working in State Bank of
India since May 1980 and has handled various
assignments.
He is B.Com., M.Com., MBA and having
Professional Qualifications in ICWAI, CS, Diploma
in Management Accountancy, PGDPR, CAIIB and
various other Diploma Courses in Banking,
Insurance, Mutual Funds and Computers.
today have margins of LESS THAN 3%points compared to over 5.5% points in1970s.
If economies do not grow very fast andbanks’ share of financial intermediation isshrinking, i.e., their lending is not growing,banks are confronted with the problem ofhow to make money. CUTTING COST IS ONEWAY OF IMPROVING RETURNS. This can beachieved through
➢ Merger of Banks and/or➢ Use of Information Technology (IT)
The merger of Chase Manhattan, ChemicalBank, Manufacturer Hanover have resultedin saving of $ 2.5 billion a year. The numberof banks in America has fallen from 14,500in the mid 1980s to just under 8000 now.This is clearly to achieve cutting of costs.
"Reduction of Cost is Profit"
The Banks have a cost element in every riskit undertakes. These can be broadly classifiedas Controllable costs and Non-ControllableCosts. Controllable costs can further besubdivided into visible, invisible andfuturistic costs. Non-controllable costscomprise of salary / wage bills and taxes etc.
The importance of OPERATING COST in thepresent banking environment can begauged from the following statement in theMonetary and Credit Policy for the year 2000-01 announced by the RBI.
“Another factor affecting the interest ratestructure in India is the high level of non-interest operating expenses of public sectorbanks. These work out to 2.5 to 3.5 per centof total assets. The high transaction costswhich generally reflect high costs, combinedwith relatively high levels of Non-PerformingAssets (NPAs), further constrain themanoeuvrability in respect of lending rates.”
The operating cost as ratio of total assets isotherwise referred to as the intermediation cost.
Profit and thereby profitability, the ability togenerate profit, can be increased by two waysviz.
➢ Increasing the income on the one hand
and
➢ Decreasing the expenses on the other.
One of the crucial factors in maintainingprofitability of a bank is its ability to controlcost of operations. The cost to income ratioshould be kept at minimum possible levelsreducing overheads on an on-going basisbut without adversely affecting the qualityof services. Closing down of loss making ruralbranches, reducing staff costs throughadaptation of technology and improving theirproductivity etc., goes a long way in cuttingoverheads in this inflationary environment.Optimum use of modern TelecommunicationNetworks like SWIFT, e-mail, VideoConferencing, centralised bulk purchase ofstationery etc. helps in the cost cutting effortsof banks.
Automated Teller Machine – a Cost ControlDevice to the Commercial Banks
COSTING has become an area of crucialsignificance as never before in today's fastchanging banking scenario. The keydevelopments, which have resulted into
providing a place of eminence for this
discipline, are as under:
1) RBI's licensing policy has resulted
in encroachment by private(new generation)/foreignbanks in old bastions ofPublic Sector Banks(PSBs). This hasresulted intos i g n i f i c a n t l ybringing downmarket sharepercentage ofPSBs.
2)Deregulationof interestrates ands e r v i c echarges forr e m i t t a n c e s .This hasn e c e s s i t a t e defficient operating
17IBA BULLETINJULY 2005
system in banks to work under thinnermargins in a buyer's market.
3) Impact of globalisation witnessed inthe form of new products/re-engineering in processes as a result ofprogressive integration of IndianEconomy with World Economy.
4) Electronic Banking is gradually spreadingin PSBs, since the hi-tech superiority ofPrivate (new generation)/Foreign banks,has rendered PSBs services obsolete. Themammoth manpower of PSBs hasbecome their drawbacks symbolised asa significant cost centre.
5) Strategic alliances through mergers, oflate, to strengthen product deliverysystem has further sharpenedcompetition in banking sector.The Indian Commercial Banks makesits transition towards technologyoriented banking, alternate deliverychannels will assume importance forbetter Customer Service with valueaddition and effective reduction inCost of Transaction.
A large number of ATMs have already beeninstalled by the Commercial Banksthroughout the country. The utility of ATMis already gaining popularity day-by-dayamong the customers of the bank and thebenefit of such huge number of ATMs spreadover the country is being utilised by thecustomers of the Commercial Banks. TheATMs are emerging as the most useful toolto ensure “Any-Time Banking” and “Any-where Banking” or Any-Time Money.
While the benefits of ATM are immense, thecost of ATM, though has come down, is stillprohibitive. An ATM costs anywhere betweenRs.8 - 10 lakhs. If a bank has to install 100ATMs it should spend atleast Rs.8 - 10 crs.Added to this, is the maintenance cost. Today,any electronic device attracts an annualmaintenance cost of 8 to 12 % of capitalcost. Besides this, banks have to incurexpenditure on the rent for retail outlet, itsambience and on security personnel etc.
While many Public Sector Banks have goneon a big way in opening ATMs, there is aneed for sufficient examination of their
economic viability. Already there isexperience that the hits per ATM are lessthan 200 resulting in no big gain for eitherthe bank or customer. The average usage ofATMs in Europe was 3300 withdrawals permachine per month in 1999. Sweden hasreported exceptional high in hits with anaverage of 10156 withdrawals per ATM permonth. India with more population densityshould show a higher average hit per dayand this emerges as a critical factor in theoverall ATM strategy towards making thewhole business idea profitable.
With the increasing pressures on spreads,banks have no alternative but to resort tocost cutting exercise in whatever way feasible.While there is limited scope for reducing staffcosts for reasons best known to all, othertarget areas where banks can certainlyensure trimming of costs are stationery /printing, rent, telephones, electricity andother overheads etc. Faced with relentlesspressure to reduce costs, it would also benecessary to have a re-look at all theoverheads including those which pertain tomaintenance of support services which maynot be part of core business activities of theorganisation. Such analysis of costs involvedin support services may prompt to resortingto “ATM”. ATM is considered as one of theacceptable strategies for cost control.
The rationale for banks introducing ATMs inthe 1970s, telephone banking in the 1980s andnow the internet banking was to deliver theirproducts more cheaply than traditional branchnetworks, which are loaded with expensive staff.
"Lloyds TSB claim that only two peoplecontrol the banks' 4500 ATMs"
Private Sector Banks going ahead withaggressive ATM plans particularly off-site(away from branch), for wider reach withLOWER COST. They are also targeting ATMdeployment in top corporate offices or staffcolonies – not only for the salary accountsbut also for a piece of the Corporate Pie andalso to get the following benefits.
a) Reduces overheads.b) Minimises use of costly consumables
like cheque – leaves etc.
c) Can lead to increased profitability byreducing costs per transaction–imperative in an intensely competitiveenvironment.
d) With increase in number of ATM cardsand usage, transaction cost will declinesubstantially.
e) Can advertise Bank’s products onscreen – cross selling loans, insurance,credit cards, etc.
f ) Revenue earning stream–through saleof tickets, bill payments, income taxcollections etc.
At present some banks are offering only Cashwithdrawals. Banks should immediatelyprovide other facilities such as Cash deposits,Issue of Cheque books, Drafts, Stop PaymentInstruction of cheques, and transfer of fundsfrom one branch to another branch of thesame bank and other facilities alreadyavailable in ATMs. Such a step will help inoptimum utilization of the ATM therebyreducing Cost per transaction. The present &future technology comparison of ATMs are:
Today’s ATM The Future ATM
Multi-Lingual Personalization
Web Enabled Campaign Management
Bill Payment Biometrics
Mobile Recharge Biometrics
Ticketing (Railways) Ticketing (Airlines)
Third Party
Advertisement Wireless
Fund Transfer Shared Network Model
National Financial Switch of Reserve Bank ofIndia
The Institute for Development and Researchin Banking Technology (IDRBT), establishedby the Reserve Bank of India in 1996, is aninstitute catering to the banking sectorrequirements in areas of education and
training, security, technology, research and
development and consultancy.
IDRBT runs the communication backbone
of Indian Banking Sector, the INFINET (Indian
Financial NETwork).
Automated Teller Machines of all public and
private sector banks in the country will be
brought under the National Financial Switch
IBA BULLETINJULY 2005
18
(NFS) umbrella of the Reserve Bank of India
by July, 2005.
The project, aimed at inter-connecting the
ATMs of all banks, is being implemented by
the IDRBT.
Euronet Worldwide Inc. through its Indian
arm, Euronet Services India Pvt Ltd. is
implementing the ATM connectivity project
for IDRBT. The project will enable customers
to deposit or withdraw cash from an ATM of
any other Bank. Launched officially on
August 27,2004, three banks – Corporation
Bank, Bank of Baroda and ICICI Bank – have
already joined NFS. Seven other banks are
also likely to get hooked on to the NFS by
January, 2005.
According to the IDRBT, the NFS has
assumed importance given the plans of the
banks to share ATM resources. The project is
expected to optimise costs for banks. This
project has economic advantages and offers
wider reach while helping in preventing
infrastructure duplication. Besides, when in
place, this common solution opens up a
range of electronic possibilities for banks,
corporates and consumers.
Comparative Cost Statement of Automated Teller Machine And Teller
Automated Teller Machine
Sl. No. Type of Cost Total Cost Cost per Month
01 FIXED COST:
ATM Cost
(Sales Tax differs from State to State)
Average Life – 10 Years 6,70,000
Method of Depreciation (Straight Line Method @ 10% p.a.
Depreciation per month=(Rs.67,000/12 Months) 67,000 5,583
02 Cost of Construction of ATM Room (Civil Works & Electrical Installation) -
Average Life - 10 Years 2,50,000
Depreciation @ 10% p.a. – Straight Line Method
Depreciation per month=(Rs.25,000/12 Months) 25,000 2,083
03 Cost of Air-Conditioned, UPS, Fixtures & Furniture,
Telephone and its installation Cost 3,00,000
Depreciation @ 10% p.a. – Straight Line Method
Depreciation per month=(Rs.30,000/12 Months) 30,000 2,500
04 Rent payable per month for ATM Room (if it hired outside the branch
premises i.e., off-site (The rent depends upon the Location, City etc.,
i.e., Rs.2,500 p.m. to Rs.8,000 p.m.) – Average Rs.5,000/- p.m. 5,000
05 Annual Maintenance Cost @ 8% per annum on
Original Cost of ATM (Rs.6,70,000 x 8%) 53,600 4,467
Per month Annual Maintenance = (Rs.53,600 / 12 Months)
Insurance premium per annum:
1. Standard and Fire Policy – Rs.95/- per lakh.
It covers:
Fire and Standard. All types of fire, natural calamities,
malicious damages, riots and strike, terrorism, earth quake,
landslide, subsidence & aircraft damages.
2. Burglary and housing breaking – Rs.1,050 per lakh – 5%
service charges extra. For Bankers 5% discount facility available.
It covers burglary, theft and house breaking of ATM risks.
(Rs.95 + Rs.1,050) x Rs.6.7 lakhs
Per month insurance charges (Rs.7,700 / 12 months) 7,672 639
19IBA BULLETINJULY 2005
Sl. No. Type of Cost Total Cost Cost per Month
07 Cost of Dish and its peripherals & installation cost 2,10,000
Average Life – 10 years
Depreciation -10% p.a. – Straight line method
Depreciation per month (Rs.21,000 / 12 months) 21,000 1,750
08 Outsource of Watch & ward for 24 hours & cleaning and
maintenance of ATM Room – per month 10,000
09 Supervising Staff average time spend for ATM cash
replenishment etc. – 2 hours per day
Average salary and allowance per supervising official is
Rs.300 x 2 hours x 30 days 18,000
10 Interest on Investment (i.e., ATM Project Cost Rs.15,00,000/-
@ 5% interest on diminishing balance method) 75,000 6,250
TOTAL FIXED COST PER MONTH 56,272
Comparative Cost Statement of Automated Teller Machine and Teller
Automated Teller Machine :
Sl. No. Type of Cost Total Cost Cost per Month
VARIABLE COST :01 Electricity charges per month 2,50002 VCR Tape and Other equipment charges p.m. 60003 Paper rolls (Both for transaction slips + Cash Journal)
on an average per month. 2,75004 Printer Ribbon Cost 2,500
TOTAL VARIABLE COST - PER MONTH 8,350TOTAL FIXED COST - PER MONTH 56,272TOTAL COST PER MONTH 64,622No. of Hits per month on an average = 200 per day x 20 days
(Average-after deducting the shut-down period of ATM,Net working problems / failures, Maintenance of ATM,Out-of Cash in ATM-in particular i.e., after continuousholidays, Replenishment period of Cash in ATM,Technical Problems etc.) = 4,000 Hits per month
Per Hit Transaction Cost (Rs.64,577 / 4000) 16.16
Note :
A. ATM Card / PIN Mailers processing charges, VSAT/SWITCH/Net Working Communication charges are not taken for arriving the per
transaction cost.
B. No. of Hits per day taken as 200 and average number of days taken per month as 20 days(after taking into account Peak & Non-peak
levels as well as shutdown etc., - Total Number of Hits per month on an average 4,000).
C. ATM/Card/PIN Mailers Processing (including Postage) per account holder Rs.65-00 (This is one time cost).
IBA BULLETINJULY 2005
20
Conclusion
The success of cost of reduction through
the ATM depends on many factors:
➢ Right location of the ATMs
➢ Optimum population of ATMs at each
centre
➢ Provision of maximum facilities at the
ATMs
➢ Customer education
➢ Making the customer habitual of using
ATMs
Involvement, preparedness and willingness
of staff at all levels to make the program a
success.
The above analysis is not to discourage the
installation of ATM but to drive home the point
that the staff and the customer should be
educated to popularise the use of ATMs. Any
new idea is greeted with resistance world over
and ATM is no different in this regard. It is
reported that even in USA, the ATMs in the
initial stages were an unwelcome curiosity.
There is thus a dire need to increase the usage
of ATM by proper education of staff and
customer.
The average cost of installing an ATM is
Rs.12,00,000/- and a recurring cost of
Rs.12,000/- per month. For an ATM to be
viable, it is estimated that a minimum of 300
to 400 transactions should take place at the
ATM per day because ATMs are expensive.
The cost of a teller transaction presently
ranges between Rs.30-60, while a transaction
on an ATM that does about 200 transactions
per day costs Rs.15-20. The cost of an ATM
transaction could fall to even Rs.15 if the
number of transactions were higher.
To ward off the problem of poor hits and to
make the investment viable, banks enter into
shared network agreement. Under this, an
agreed fee should be paid for the transactions
of the customers performed in other bank's
ATM. For example, a cash withdrawal of one
bank done in another bank's ATM attracts a
fee of Rs.50/- to be paid to the ATM owning
bank. Similarly, the fee for balance enquiry is
Rs.10/-. In this way, banks recover the capital
cost of ATMs. The small banks that cannot
afford huge capital investment can work out
this kind of agreement. This would be
mutually beneficial both for small and big
banks. While big banks can benefit from their
strength of resources, small banks need not
commit their capital to upgrade their
technology.
All business have common interests and
competitive interests. On the operational side,
banks co-operate wherever transaction costs
can be reduced by such co-operation. The
concept of open-architecture, which requires
co-operation between competing
organisations. Where the cost involved in
setting up a new entity is high or where there is
inadequate business or multiple entities, banks
have co-operated, such as the establishment
of ARCIL. Apart from areas of co-operation such
as the above, banks are naturally competitors
in the same business and tend to compete
hard for business and profits.
Today, the overall economic conditions
remain challenging. The need of the hour is
to focus on the BASICS OF BUSINESS. We
need to focus on managing cost efficiencies
and on increasing profits. As FORTUNE
MAGAZINE rightly pointed out, we have
learnt from the dot com bust that: “If it does
not make cents, it does not make sense”
Comparative Cost Statement of Automated Teller Machine and Teller
TELLER :
Sl. No. Type of Cost Total Cost Cost per Month
VARIABLE COST :
01 Average Monthly Salary (including perks, medical benefits, LFC,
welfare costs, cost of different leaves such as P.L. C.L. Sick Leave etc.,
Terminal benefits like Gratuity, Pension etc. – for a Senior employee) 36,000
02 Officers required for supervising the various activities of Teller such as
Cash Withdrawal/ Deposit from Currency Chest, Various type of
transactions Checking etc.
(2 hours a day for 2 officers @ Rs.600 /- per day for 2 officers x 30 days) 18,000
03 Cost of Teller counter, furniture, electricity, Stationery (Receipts &
Payment Vouchers, Day books, Balancing Books, Interest application
& Internal House-keeping Maintenance etc.,) per month 6,000
TOTAL COST PER MONTH - PER TELLER 60,000
04 Average number of instruments per day handled by teller
(peak and non-peak level = 100) for 20 days = 2,000 vouchers per month Rs.30
21IBA BULLETINJULY 2005
1. Name of the Company (Vendors of ATM) :
2. Functionalities of ATM : 1)
2)
3)
4)
3. ATM Price : Actual Price Rs.
Sales Tax Rs.
(if any)
Customs
Duty etc., Rs.
(if any)
4. Depreciation (per annum) : % percentage :
Amount of
Depreciation: Rs.
(p.a.)
Expected Life of
ATM : -----
(Years)
Method of
Depreciation :
5. Annual Maintenance cost , Name of
the Company & AMC -Terms and
Conditions of the Contract :
6. Average Monthly Recurring Costs other
than the Annual Maintenance Cost :
7. Insurance Premium, Total Risk Amount,
Risks covered & Name of the
Insurance Co., :
8. Construction Cost of ATM Room :
(Civil Works)
9. Rent payable per month for
ATM Premises :
(Off-site ATMs)
10. Electricity & AC Installation Cost :
11. Electricity Installations Cost,
Life, % of Depreciation and
Depreciation Amount :
12. Electricity Charges per month
(for AC, ATM
and Electricity Installation etc.,) :
13. AC Machinery Cost , Life of
A/C Machinery,
Depreciation % and Depreciation
Amount and Method of Depreciation :
14. VCR Tape Cost :
15. VCR Tape - (Replacement period) :
16. Camera Cost
(if not included in ATM system)
its life & % of depreciation :
17. Communication Charges
(Networking charges like
SWITCH / VSAT etc) :
18. Paper Roll cost per bundle
(to generate transaction slips etc.,
& No. of slips generated
per bundle + Cash Journal
transaction paper per bundle cost
& No. of Journals generated
per bundle and suppliers its
supplier service) :
19. No. of personnel required to service
the ATM like Officer, Systems Officer
etc., hours spend per day on ATM
and their Salaries &
Allowances per hour :
20. Average Hits per day : No.
Amount
21. Cash replenishment periodicity :
22. Capacity of Cash Bins, its
denomination and Total Amount :
23. Average Number of Hits :
a) Peak Level :
b) Off - Peak Level :
24. Problems
a) Banker's Point of View :
i) Technical :
ii) Generals :
b) Customer's Point of View :
i) Technical :
ii) General :
25. Net working failures per month :
26. ATM shutdowns per month and
Shutdown cost :
27. SWITCH / VASAT Services
Cost per month (if any) :
28. Dish Antenna Installation Cost,
& Peripherals Cost,
% depreciation & and its life etc., :
29. ATM card / PIN mailers processing
charges per customer :
30. Duplicate ATM card processing
charges per customer:
31. Computer consumables like
printer Ribbon cost etc., :
32. Watch & ward Salaries & Allowances
(No. of watchmen required) :
33. Maintenance Cost of
ATM room per month :
35. UPS Cost (Exclusively for ATM) :
36. Annual Maintenance Cost (for UPS) :
38. Capital Expenditure cost
(i.e., Discounted value) :
39. Any other costs (Please specify) :
1)
2)
3)
4)
5)
Particulars Required for Arriving the"Cost - Benefit Analysis" of an automated Teller Machine
�
IBA BULLETINJULY 2005
22
PerformanceManagement System
In Banks
“Performance
appraisal is a
personal
decision of
Management
that affects the
status of an
employee in
connection
with their
retention in the
organisation
termination,
promotion,
mobility or
transfer, salary
revision or
decrease or
imparting
training”.
P.V. Anantha Bhaskar
status of an employee. It is a basic tool for increasing
the morale and productivity of employees, ultimately
statement declaring that the material has not been published elsewhere nor has been given to any other
publisher for publication. A passport size photograph of the author together with a small write-up about
the author may be sent alongwith the article. The Association pays honorarium to authors whose articles
are published.
Consolidation
alone will give
banks the muscle,
size and scale to
act like world
class banks. We
have to think
global and act
local and seek
new markets,
new classes of
borowers
Santosh Patnaik
Consolidate orPerish
banks worldwide to look for new pastures to boost
their earnings. Consolidation in fact,has been the
defining characteristic of the banking world during
the last decade. The year 1998 witnessed more
volumes of mergers and acquisition (M & A) in the
commercial banking industry worldwide than any
other industry. More than a fourth of total mergers
and acquisition deals were involving banks –
totalling $102 billion (The Economist, March 13, 1999).
M & As however, are not a recent phenomenen; four
periods of high merger activity, known as ‘merger
waves’ occurred in the United States (1897-1904, 1916-
29, 1965-69, and 1984-89) before the current one that
began in the early 1990s. This latter wave attained
exceptional levels in terms of sheer value and
volume of transactions, and has been
instrumental in the decline of the number of
banking organizations in the U. S. - between
1980 and 1997 they dwindled from
12,333 to 7122. Simultaneously, the
proportion of banking assets
accounted for by the 100
largest banking
Globally, the banking industry is
undergoing significant metamor-
phosis,with ‘bigger the better’- being
the revealed preference of the
prime players. Disintermediation,
coupled with cut-throat
competition have literally forced
organizations went from over 50 per cent in 1980 to
nearly 75 per cent in 1997. The reasons for these
mergers were a new statutory environment that
allowed interstate ownership and branching; banks
seeking scale economies; geographical
diversifications; and increased competitive pressures.
Europe too, experienced similar M & As experiences
between 1980 and 1995, when the number of
banking establishments fell, particularly in Denmark
(-57 per cent) and France (-43 per cent).The merger of
Switzerland’s two top banks – Union Bank of
Switzerland and Swiss Bank Corporation on Dec, 08,
1997 created the world’s largest asset manager with
a fund portfolio worth almost a trillion dollar, with
assets of Swiss Fanks1320 billion ($ 912.8 billion) and
a market capitalization of $ 59 billion at Dec 03, 1997
prices and made it world’s 4th largest after HSBC,
Bank of Tokyo-Mitsubishi and Lloyds TSB Group.In
Japan,three banks - the Industrial Bank of Japan (IBJ),
Dai-Ichi Kangya Bank (DKB) and Fuji Bank announced
their intentions to merge in 1999. Some of the reasons
advanced by Japanese banks for their merger were:
the need to invest more in information technology
than one bank can afford;foreign competition; drive
for economies of scale in retail banking; and the need
to increase capital strength in the face of bad debt
crises.
A G-10 report on consolidation in financial services
which surveyed 45 experts in the area of banking
from these 10 countries revealed that exploitation
- Shri P. ChidambaramMinister of Finance
IBA BULLETINJULY 2005
30
31IBA BULLETINJULY 2005
”
”
Mergers provideroutes for cross border
expansion;here themotivation is
increasing revenues.Banks find it easier to
acquire an existingbank with a wide
branch network thanto build their own
network from scratch.
Shri Santosh Patnaik is Officer,
United Bank of India, Bhubaneshwar.
of scale economies emerges as the single
most important motive for within industry
mergers, while enhancement of revenue
through provision of one-stop shopping for
customers emerges as the single most
important motive for mergers across
industry segments (Group of Ten
Report,2001). While an important motivation
for mergers has been the ability to
rationalize branches to cut down costs, the
potential for such cost saving depends on
the structure of a country’s banking industry.
Spain, for example, has more than five times as
many branches per citizen as America; Germany’s
ratio is twice that of America’s (The Economist,
March 13,1999). Thus,historical factors behind
branch expansion influence the possible
savings through branch rationalisation.
Mergers provide routes for cross border
expansion;here the motivation is increasing
revenues. Banks find it easier to acquire an
existing bank with a wide branch network
than to build their own network from
scratch. Mergers are also used as an exit
route for troubled banks. The Trust
Fund,established in 1995 at the height of
the banking sector crisis in
Argentina,assisted in the mergers of more
than a dozen troubled banks with healthy
banks.In sum, the growing tendency towards
mergers in banks worldwide has been
primarily driven by: intensifying
competition, need to reduce costs, enhance
size,technology upgradation, desire to
expand business into new areas, improve
shareholder’s value, and diversify large bank
loan portfolios to lessen the likelihood of
failure and harness core competencies.
Indian scenario
History reveals that mergers of banks in India
took place in the 1960s under the direction
of the apex bank. From 566 reporting
commercial banks at the end of 1951, the
number came down to 292 at the end of 1961,
to 100 at the end of 1966 and to 85 by the
end of 1969. Over the past 45 years, 34 banks
and non-banking finance companies have
been merged. Till now, most mergers that have
taken place in the banking industry have
been under coercion, e.g. Nedungadi Bank
with Punjab National Bank, Global Trust Bank
with Oriental Bank of Commerce,Benaras
State Bank with Bank of Baroda, Sikkim Bank
with Union Bank of India, and ANZ Grindlays
with Standard Chartered Bank. The notable
exceptions, of course are HDFC Bank’s take-
over of Times Bank and the merger of SCICI,
Anagram Finance, ITC Classic, Bank of Madura
and ICICI with ICICI Bank.
The Narasimham Committee on financial
sector reforms (Report II) had stressed the
need to reduce the number of public sector
banks and to create a few large banks with
large-scale operations and international
presence. This was triggered off by Finance
Minister P.Chidambaram’s speech at the IBA’s
annual general meeting in Mumbai in
August 2004, wherein he
emphasized: “Consolidation
alone will give banks the
muscle,size and scale to act
like world-class
banks.We have to
think global and act
local and seek new
markets, new
classes of
borrowers”. While
replying to a
question on the
consolidation of
Government owned
banks in the Lok
Sabha on 4th
December, 2004, he
IBA BULLETINJULY 2005
32
remarked “Larger size entails better
management of risk. Small and weak banks
pose systemic risks with their low capital
adequacy ratio and high non-performing
assets”. Again, speaking at a banking seminar,
Chidambaram remarked “International
trends suggest that consolidation has
reduced the chances of credit risk.Tata
Motors looks and behaves like a global
company,Ranbaxy looks and behaves like a
global drug company. If Infosys, Wipro and
TCS look and behave like global companies,
Indian banks need to do the same.”
Close on heels of the Finance Minister
pitching for consolidation in the banking
sector, the RBI too, feels that M & As are
imminent. In view of favourable signals from
the Ministry of Finance and managements
of various banking institutions, a number
of leading public sector banks and new-age
private sector banks are understood to be
in the process of scouting for ‘suitable
acquisitions’, based on geographical
advantages and other business and cultural
synergies. M & A has, in fact, replaced NPA as
their buzzword. Among the private sector
banks, some of the names that have been
doing the rounds as ‘potential acquisitions’
are. Lord Krishna Bank, Lakshmi Vilas Bank,
Karur Vysya Bank, Karnataka Bank and
United Western Bank. The virtual merger of
SBI and its seven associates in the form of
technology and treasury integration has
alredy begun; legal merger requiring some
more time. Bank of Baroda is looking for
acquisition in principle, “We are looking for
acquisitions in areas where we don’t have a
very strong presence. We are very strong in
western India,but don’t have much reach in
the south, east and north. These are the areas
to which we would like to expand”, said its
Ex-CMD P. S. Shenoy. Punjab National Bank,
which took over the private sector Nedngadi
Bank, is in the process of acquiring Industrial
Finance Corporation of India(IFCI). Allahabad
Bank is looking for an acquisition down
south where its coverage is limited. “Our aim
is to gain both operational and geographical
synergy, while we finalise the consolidation
process”, says its CMD O.N. Singh. Vijaya Bank,
a southern player is looking towards the
north. Indian Bank, after its resurrection, is
quite optimistic: “If you want to grow, you
need capital …We will takeover some bank
and are looking out two or three targets at
the moment”, says its CMD M. B. N. Rao.
Oriental Bank of Commerce, which is still
digesting its wedlock with Global Trust Bank,
is likely to revive its merger plans soon.
Union Bank of India and Bank of India may
be the first to tie their nuptial knots.
Advocates of M & As are of the view that
with large cost bases and unwieldly product
and regional distinctions in the Indian
banking sector, global logic for mergers and
acquisitions also hold good in India. This,
they argue, would take care of the negative
factors such as, slow settlement of bad debts,
low profitability, poor capital adequacy
ratios and increased competition. Nimble
newcomers, armed with tight business focus
and strong consumer brands are harnessing
the power of technology to take advantage
of deregulation and liberalisation, thereby
increasing pressure on profit margins of
established banks. Analysts feel that size
matters a lot when it comes to compete for
a piece of the pie in the domestic as well as
global market. Size, brings along with it
economies of scale by bringing down the
transaction cost, build up financial strength,
capture larger portion of the growing retail
business, help expand overseas business
and secure better regional presence. The
Basel II accord which is slated to come into
effect from the end of 2006 aims to give
banks the means to weather external shocks
especially by setting minimum capital
requirement to absorb the potential impact
from a big default. The mounting pressures
on capital structure to meet these prudential
capital adequacy norms necessitates the
need for consolidation in the banking sector
which would provide Indian banks the ‘size
advantage’ that most foreign banks do
have.Recent events of collapse of banks like
Global Trust Bank, South Indian Co-operative
Bank and Maratha Mandir Co-operative
Bank pose greater need for consolidation
and ensure safer business transactions for
bank’s customers. This would also ensure
higher transparency,higher business
efficiency and higher corporate governance
standards.
Proponent of M & A argue that India is a
hugely over-banked, but under serviced
country. There are close to 100 scheduled
commercial banks, 4 non-scheduled
commercial banks, and 196 regional rural
banks. The State Bank and its 7 associates
have about 14,000 branches; 19 nationalised
banks 34,000 branches; the RRBs 14,700
branches; and foreign banks around 225
branches. If one includes the branch
network of old and new private banks,
collectively the spread could be over 68,000
branches across the country. Besides, there
are a few thousand co-operative bank
branches. Thus on an average, one bank
branch caters to 15,000 people. Amidst this
plethora, State Bank of India is the sole
entity among the top 100 banks in the
world,that too ranking a lowly 82! Even small
economies in Asia like Thailand and Taiwan
have more big banks. It is only on parameters
like the number of employees and branches
that SBI figures near the top. SBI is catering
to a population size which is three times
than that serviced by Bank of America (BOA);
SBI is reaching 90 to 100 million customers
while BOA has around 30 million customers.
33IBA BULLETINJULY 2005
But looking at the assets of these two banks,
BOA has more than a trillion dollar of assets
as against SBI’s size of $ 93.75 billion (@Rs.43.5
/ $). This, undoubtedly gives BOA a muscle
to cut costs and amplify earnings.
People Issues
To gain full merger benefits, two overlapping
organizations are compressed into one,
trimming duplicated operations which
entails redundancies at all levels. The M & A-
driven consolidation is raising important
public policy concerns,notably with respect
to employment. As witnessed recently, the
United Forum of Bank Unions have
expressed strong reservation for
consolidation within public sector banks.
One of the major issues which need to be
handled is in regard to the treatment of the
employees of the transferor bank
consequent upon the merger or acquisition.
The regulator should draw guidelines
regarding the continuance and other service
conditions applicable to the employees of
the transferor bank consequent upon
merger. Re-training of staff is another
challenge for the emerged entity. “People
issues are important,” says former deputy
governor S.S.Tarapore, “Not much debate has
taken place on what is to be done with the
branches or staffing.” He adds that mergers
in India have so far been bailouts; one ailing
bank is rescued, but it is a leg shackle for the
other.
Change as usual, is always a source of
uncertainity, tension and potential conflict.
The creation of formal,internal
communication mechanisms as early as
possible in the process is necessary to limit
the anxiety that will otherwise be fuelled by
rumour, the grapevine, or even outside news
reports. It is essential to prepare and
communicate to staff a programme of
integration so as to combat the feelings of
fear, apathy, demotivation and the classical
“victor” and “vanquished” syndromes.While M
& As are driven by financial considerations,
their success vitally depends on the
motivation of retained staff to contribute to
the achievement of merger activity. Poor
morale due to increased job insecurity of
retained staff is by far the worst human
resource problem in today’s business climate.
The survivors who are already subject to
“survivor’s syndrome”find they have to work
harder to cover staffing shortfalls,with the
consequence that increased workloads feed
the stress related to job
insecurity,undermining the very efficiency
goals that motivated the merger or
acquisition. Job insecurity may make
employees feel pressured into agreeing to
put extra effort into their jobs to demonstrate
organizational loyalty; but such working
conditions are neither sustainable nor
conducive to the achievement of corporate
objectives. M & A value extraction is impossible
without the enthusiastic cooperation of
employees.
Consumer Issues
While supporters of M & As argue that this
would facilitate synergy between the
merged organisations, generate efficiency,
increase competitiveness and provide
services at lower prices, those opposing
financial sector M & As strongly contest their
consumer gains and maintain that they only
result in employment losses and
diminishing access to services. Studies have
indeed revealed that larger financial
institutions tend to charge more and higher
fees than their smaller counterparts and
note an inverse relationship between the
sizes of financial institutions and their loan
portfolios to small businesses. Assertions
that size guarntees economies of scale
essential to compete in global markets have
similarly been disputed on the ground that
size is irrelevant to international
competitiveness.
Cultural issues
Full integration requires the best aspects of
both legacy organisations to be
incorporated into a single new company
culture focused on achieving future business
growth. The key issues that lead to failure of
bank mergers are lack of planning and failure
to manage cultural differences. It is not
necessary that two banks have the same
culture. Cultural and symbolic elements in
M & As are typically framed in terms of the
distinction between the emerging firms, thus
leading to an “us versus them” dualism. Early
emphasis on cultural assessments and
communication plans are particularly
important. According to a KPMG report, M &
A deals were 26 per cent more likely than
average to be successful if they paid
satisfactory attention to cultural issues. If not
handled properly, this can lead to an
accumulation of critical errors and
misunderstandings and ruin what, on paper
might look like a highly promising deal.
Technological Issues
Most of the banks, especially public sector
banks,have implemented technology in bits
and pieces; as such, they are at different
stages of technological implementation.
Besides, they have different core banking
solutions provided by different vendors i.e.,
I-Flex,Infosys, TCS, Wipro, etc which,may pose
challenge to the merging entities to
integrate their technology and working
platforms. Similarly, the range of software
for treasury operations is quite wide e.g.
Kondor, +Kastle,
iDEAL, ITMS etc, while the vendors are Reuters,
Unisys, Oracle, TCS, Credence, ICICI info,
Bloomberg, Synergy login and a few others.
IBA BULLETINJULY 2005
34
Here too, software synergy becomes an issue
during mergers. If two banks with two
different technology platforms plan a merger,
hundreds of crores of rupees will go down
the drain.
Role of Regulators
Mergers should be based on the need to
attain a meaningful balance sheet size and
market share in the face of heightened
competition and driven by synergies and
locational and business-specific
complementaries. Bank consolidation/
merger process should be primarily market
driven and such proposals should come
voluntarily from the banks themselves.
Government and supervisory authorities
should only provide a conducive
environment for consolidation and
convergence through appropriate fiscal and
monetary policies supported by a sound
regulatory and supervisory framework; at the
same time ensuring that a few large
institutions do not create an oligopolistic
structure in the market.In particular,
regulators have to consider the anti-trust
aspects of merger activity.In this context the
experience of US Federal Reserve can be
useful since the US has seen more mergers
in the past two decades than any other
country. The objectives of the public policy
followed by the US Federal Reserve Bank in
cases of mergers are :
1. Ensure a safe and sound banking system;
2. Preserve benefits of competition for
consumers of financial services;
3. Meet convenience and needs of local
communities;
4. Allow the firm to evolve with the needs
of the market.
To ensure a smooth passage to the new zone,
the Government needs to amend the
Banking Regulation Act.IBA, the bankers’apex
body, which set up a committee under the
chairmanship of Mr. V. Leeladhar to look into
the intricacies of mergers and acquisitions in
the banking sector, has suggested
corporatisation to bring all banks under the
Companies Act, 1956, thereby ensuring a
common legal framework and resolving the
anamolies and lacunae in the Income Tax Act.
This would also help the government extend
tax sops to public sector banks.
Today’s highly competitive banking
world,inebriated with Darwin’s “Survival of the
Fittest” mantra has no reverence for the age-
old aphorism “Live,and Let Live”; and Indian
banks have no option,but to move slowly,
but surely from the present regime of ‘large
number of small banks’ to a ‘small number of
large banks’. The new era, certainly is going to
be one of consolidation around identifying
core competencies. "Consolidation" says
Dr. A.K. Khandelwal, CMD, Bank of Baroda,
could be in two phases. Phase I could be
between two banks, followed by the merger
of one or two additional banks to form larger
entities. This phase could also see area-
specific consolidation, followed by across-
the-country consolidation. What will mark
out the new era of consolidation from the
earlier experiences is that the future players
will be willing players.
The writing on the wall is very clear; whether
we back up or not, circumstances will force
us to consolidate or perish. �
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The IBA reserves the right to accept/reject advertisements.
Revised ECB Guidelines
Recently, the government revised the normsfor external commercial borrowings (ECBs).The last revision of these norms were done inJanuary, 2004. ECBs could now be accessedunder two routes, the automatic and approvalroute. ECB for investment in the real sector,that is industrial sector, is under the automaticroute. All cases that fall outside the purviewof the automatic route, will be decided by anempowered committee of the Reserve Bankof India. Following are the amendments madeby the government with regard to the ECBguidelines.
• Non-banking finance companies will bepermitted to go in for ECBs through theapproval route to meet fundrequirements from multilateral financialinstitutions, reputed regional financialinstitutions, official export agencies andinternational banks towards import ofinfrastructure equipment for leasing toinfrastructure projects with minimumaverage maturity of five years.
• Housing Finance Companies with strongfinancials satisfying criteria to be notifiedby the RBI , will be permitted to issueforeign currency convertible bonds underthe approval route.
• Financial institutions dealing exclusivelywith infrastructure or export finance suchas IDFC, IL&FS,Power Finance Corporation,Power Trading Corporation, IRCON, andEXIM Bank of India will be permitted togo for ECBs through the approval route.
• Banks and financial institutions that hadparticipated in the textile or steel sectorrestructuring package as approved by thegovernment are permitted to the extentof their investment in the package andthe assessment by RBI based onprudential norms. Any ECB availed for thispurpose so far is deducted from theirentitlement.
• All ECBs would be subject to specificmaximum spreads over the six monthLIBOR, for the respective currency. Theinterest spread ceiling would include rateof interest, other fees and expenses inforeign currency except commitment fee,pre-payment fee and fees payable in
Indian rupees. Moreover, the payment ofwithholding tax in Indian rupees isexcluded for calculating the all-in-cost.
• Issuance of guarantee, standby letter ofcredit, letter of undertaking or letter ofcomfort by bank, financial institutions andNBFCs relating to ECBs is not permitted.However, application for providingguarantee/ standby letter of credit orletter of comfort by banks, financialinstitutions relating to ECBs in the case ofSME will be considered on merit subjectto prudential norms.
• The prepayment of ECBs will be revisedupwards to US $ 200 million from US $ 100million, subject to minimum averagematurity of five years.
Special Economic Zones Bill – 2005
In May, 2005 the Special Economic Zones Bill2005 was passed in the Lok Sabha.The SEZ Billis expected to encourage exports and foreigndirect investment in the country. The Billprovides a single window clearance andapproval mechanism for the establishment ofSEZs, as well as production units inside thezones. The Bill contains income taxconcessions for both SEZ units and SEZdevelopers, who continue to get 100 per centincome tax exemption for 10 years in a blockperiod of 15 years. Other features of the Billinclude the following:
• Establishment of SEZ and setting up ofunits therein;
• Establishment of free trade andwarehousing zones to create world classtrade-related infrastructure to facilitateimport and export of goods, aimed atmaking India a global trading hub;
• Requirements for setting up offshorebanking units and units in InternationalFinancial Service Centre in SEZs, includingfiscal regime governing the operation ofsuch units.
• Establishment of an authority for eachSEZ set up by the Central government toimpart greater administrative autonomy.
• Designation of special courts and asingle enforcement agency to ensurespeedy trial and investigation of notifiedoffences committed in SEZs.
Simplification of Procedure for Settlementof claims in respect of deceased depositors
With a view to facilitate expeditious andhassle-free settlement of claims on the deathof a depositor, the RBI had issued thefollowing guidelines to the banks. Importantfeatures are as follows:
1. Treatment of Accounts with nominee/survivor clause
In the case of deposit accounts where thedepositor had utilized the nominationfacility and made a valid nomination orwhere the account was opened with thesurvivorship clause (“either or survivor”, or“anyone or survivor”, or “former or survivor”or “latter or survivor”), the payment of thebalance in the deposit account to thesurvivor(s)/nominee of a deceaseddeposit account holder represents a validdischarge of the bank’s liability provided:a) the bank has exercised due care andcaution in establishing the identity of thesurvivor(s)/ nominee and the fact of deathof the account holder, throughappropriate documentary evidence; b)there is no order from the competentcourt restraining the bank from makingthe payment from the account of thedeceased; and c) it has been made clearto the survivor(s) / nominee that he wouldbe receiving the payment from the bankas a trustee of the legal heirs of thedeceased depositor, i.e., such payment tohim shall not affect the right or claimwhich any person may have against thesurvivor(s) / nominee to whom thepayment is made. In the event of makingpayment to the survivor(s) / nominee ofthe deceased depositor, the banks areadvised to desist from insisting onproduction of succession certificate, letterof administration or probate, etc., orobtain any bond of indemnity or suretyfrom the survivor(s)/nominee, irrespectiveof the amount standing to the credit ofthe deceased account holder.
Banking Scene - Indian
35IBA BULLETINJULY 2005
IBA BULLETINJULY 2005
36
2. Accounts without the survivor/nomineeclause
In case where the deceased depositor hadnot made any nomination for theaccounts other than those styled as “eitheror survivor” (such as single or jointlyoperated accounts), banks have to adopta simplified procedure for repayment tolegal heir(s) of the depositor keeping inview the imperative need to avoidinconvenience and undue hardship to thecommon person. In this context, banks arepermitted to take decision keeping in viewtheir risk management systems, fix aminimum threshold limit, for the balancein the account of the deceased depositors,up to which claims in respect of thedeceased depositors could be settledwithout insisting on production of anydocumentation other than a letter ofindemnity.
3) Premature Termination of term depositaccounts
In the case of term deposits, banks have toincorporate a clause in the account openingform itself to the effect that in the event ofthe death of the depositor, prematuretermination of term deposits would beallowed. The conditions subject to whichsuch premature withdrawal would bepermitted may also be specified in the
account opening form. Such prematurewithdrawal would not attract any penalcharge.
4) Treatment of flows in the name of thedeceased depositor
In order to avoid hardship to thesurvivor(s) / nominee of a depositaccount, banks have to obtain appropriateagreement/ authorization from thesurvivor(s)/ nominee with regard to thetreatment of pipeline flows in the nameof the deceased account holder.
5) Access to the safe deposit lockers / safecustody articles
For dealing with the requests from thenominee(s) of the deceased locker-hirer/depositors of the safe-custody articles(where such a nomination had beenmade) or by the survivor(s) of thedeceased (where the locker / safe custodyarticle was accessible under thesurvivorship clause), for access to thecontents of the locker/safe custody articleon the death of a locker hirer / depositorof the article, the banks have to adoptgenerally the foregoing approach, mutatismutandis, as indicated for the depositaccounts.
6 Time limit for settlement of claims
Banks have to settle the claims in respectof deceased depositors and releasepayments to survivor(s) / nominee(s)within a period not exceeding 15 daysfrom the date of receipt of the claimsubject to the production of proof ofdeath of the depositor and suitableidentification of the claim(s), to the bank’ssatisfaction. Banks have to report to theCustomer Service Committee of theBoard, at appropriate intervals, on anongoing basis, the details of the numberof claims received pertaining to deceaseddepositors / locker-hirers / depositors ofsafe custody article accounts and thosepending beyond the stipulated period,sighting the reasons for the delay.
Over and above these guidelines, the bankshave to provide wide publicity and guidanceto deposit account holders on the benefits ofthe nomination facility and the survivorshipclause. Further banks have to undertake acomprehensive review of their extantprocedures and also take into account theModel Operational Procedure (MOP) forsettlement of claims of the deceasedconstituents under different circumstances tobe formulated by the Indian Banks’Association. �
Compiled from various sourcesby Jayasree Menon
CD on
VIII Bipartite Settlement
for
Workmen Staff
and
Joint Note on Wage Revision
for Officers
available at Rs.300/-
Contact : Publications Department, Indian Banks’ Association, Stadium House,
6th floor, Block 3, V N Road, Mumbai 400 020.Phone : 022-22894500/22894530
37IBA BULLETINJULY 2005
The FT Global 500 is an annual snapshot of
the world’s largest companies. In this
companies are ranked by market
capitalization. The companies with a free float
of at least 15 per cent were included in
calculating this index. The S&P 500 index of
leading US companies began in 1957. After
40 years, only 74 of the original 500 companies
remained on the list. Similarly, in Britain FTSE
100 index of leading British companies
started in 1984. After 20 years, only 23 of the
original companies remained. General
Electric of the US retained its top position in
2005 also in the FT Global 500 index. Exxon
Mobil of the US dealing in Oil and gas is in
the second place followed by Microsoft.
Citigroup is in the fourth position. There are
four Indian companies namely Oil and Natural
Gas, Reliance Industries, National Thermal
Power and Infosys Technologies in the FT
Global 500 index. Those companies which
have moved with times were able to perform
well. Analysts are of the opinion that the
compromise between shareholders’ interests
and those of employees and the wider
community has made a come back in recent
years in the form of “corporate social
responsibility. (CSR).” Champions of the CSR
opine that Companies that failed to take
account of wider social issues suffered
financial damage. Many companies have
gone along with the move towards corporate
social responsibility. Some investor groups
have encouraged them by stating that
companies should behave decently towards
their staff and the wider community because
their reputations could be damaged if they
ignore it, which ultimately lead to more
damage to shareholders. Many companies are
now sending work offshore to the benefit of
shareholders and to the greater discomfort
of European employees, and US who are
losing their jobs. Competition between
companies will always result in their seeking
some advantage. Sometimes that will be a
new technology but it will often be a
reduction in costs. Those who fail to grasp this
will be lost.
Basel II impact study threatens to delay the
accord start date in the US
The result of recently completed quantitative
impact study (QIS4) of Basel II may delay its
implementation in the United States. The four
US federal banking agencies (OCC,Federal
Reserve, FDIC and OTS) have called for a delay
in publishing an important notice of
proposed rulemaking (NPR) from the summer
to the autumn this year, to allow for further
study. The agencies have stated that QIS4
implied reductions in minimum regulatory
capital far larger than expected from previous
studies. Changes in effective minimum
required capital for individual banks ranged
from a decrease of 47% to an increase of 50%.
And no US bank would qualify under the
advanced approaches to Basel II. While the US
agencies testified that the original timetable
was possible, they also indicated that they
wanted a better understanding of the QIS4,
identify variations in the stages of bank
implementation efforts ( particularly related
to data availability), and/or suggest the need
for adjustments to the Basel II framework. In
short, the US banks require more time to
assess the impact of Basel II under the new
study. If the 20 US banks expected to
participate in Basel II do not get approval, the
possibility of a delay in the Basel II could not
be overruled.
Islamic Investment Bank’s share offering
net 100 million pounds
The rise of Islamic banking has taken another
step forward with the recent successful 100
million pound share offering by European
Islamic Investment Bank (EIIB). The issue was
oversubscribed by 50 million pounds. EIIB was
incorporated in the UK in January with the
intention of becoming the first independent
Islamic investment bank in Europe, established
and managed on a wholly Sharia-compliant
basis. The founding shareholders include Gulf-
based individuals and institutions, including a
number of Islamic banks, as well as UK
individuals and companies. EIIB is planning to
submit by the end of May, 2005 an application
for authorization to the UK’s Financial Services
Authority (FSA) to conduct Islamic investment
and wholesale banking, with a focus on the
UK,Europe, the Middle East and Asia. The
proposed range of products and services
include the following Sharia-compliant
investment banking activities: Islamic treasury,
capital markets, asset management, trade
finance, correspondent banking and private
banking. The successful EIIB issue reflects the
growing demand for Islamic finance, an area
which has only been lightly tapped by
conventional banks and non-banking
institutions in Europe.
Micro Credit and Cambodia
After a dacade of civil war and a UN – brokered
peace accord in 1991, Cambodia has gradually
regained a degree of political stability. A small
private sector has grown from the ashes of
communist rule alongside a massive
international aid effort to raise living
standards for its 13.4 million people. As a
result, a foreign investment has flowed into a
few key sectors especially tourism and
garment manufacturing. One of the fastest
growing industries in microcredit lending,
Banking Scene -Global
FT Global 500 – Some facts
IBA BULLETINJULY 2005
38
which provides loans to Cambodia’s poor and
has stimulated many successful small
businesses. Initially, many of the micro credit
institutions received foreign aid, but now they
are able to stand on their own as commercial
lenders. The combined outstanding loans by
licensed micro credit lenders grew from
roughly $15 million in 1997 to $ 64 million in
2003, according to the International Finance
Corporation (IFC). Cambodia’s largest such
lender is ACLEDA Bank, which began in 1993
as a non-governmental organization and is
now licensed as a full-fledged bank with
about 100 branches. With an average loan size
of $650, its portfolio stood at $75.4 million as
of March 2005, up from only $ 27 million at
end of 2002. ACLEDA has another distinction
as the only Cambodian lender with an
international credit rating from Moody’s
Investor Services. In 2004, the bank posted a
$2.5 million profit on $84 million in assets. One
of the reasons for the poor development of the
financial services in Cambodia was the lack of
properly structured legal systems which
prevents banks to lend without fear. The ratio
of bank deposits to GDP is less than 20% and
the total number of depositors is only 1,20,000.
The minimum capital requirement for banks
was raised in 2001 to $13 million which forced
many banks to close their operations. In the
micro credit sector, the lack of local-currency
deposits in the system is a long-term hurdle
for expansion. Most commercial banks in
Cambodia focus on servicing the country’s
closely interlocked political and business elite.
Only a handful of foreign banks are operating
in the country. May Bank and Public Bank of
Malaysia and Siam Commercial Bank of
Thailand have their operations in Cambodia.
But big players in the global scene are yet to
explore Cambodia.
Spending on Customer Relationship
Management (CRM)
Customer Relationship Management (CRM) is
more than a technology. It is a very specific
strategy that seeks to identify customers
individually and then craft sales and service
strategies that are uniquely appropriate for each
customer. CRM also seeks to interact with the
customer in a consistent manner, regardless of
the channel of communication. Tower Group
estimates that, on a global basis, IT spending on
the customer knowledge side of CRM in retail
financial services institutions will be $5.9 billion
in 2005. Of that total, just under 50% ($2.6 billion)
will be spent in the North American market and
a further $1.6 billion in the EU. It is estimated
that $ 7 million would be spend on CRM
technology by the year 2008.
Accounting Standards
From January 1st, Europe’s 7000 listed
companies adopted international financial
reporting standards (IFRs), replacing 25
different local accounting regimes with one
set of rules. The early reporters under the new
rules will be bigger companies. Smaller
companies will follow the bigger companies
at a later stage. Most inconvenienced by this
new set of accounting standards are banks,
insurers and other heavy users of financial
instruments such as derivatives, insurance
contracts and the like whose value changes
very frequently and will affect the profit
position of the concerned enterprises. Further,
the companies have very little time to adapt
to new rules and accounting standards owing
to a tussle between standard setters and
European financial industry regulators, the
affected companies and politicians. As with
any rule, companies are likely to adapt their
behaviour to get the best accounting
treatment. One of the complaints raised
against the new accounting standards is that
the new standards have led to insufficient
consistency and comparability. Now values
must be found for things that often have no
market values such as employee stock
options or most loans, so that estimates
matter more than before. Moreover,
companies have more flexibility in deciding
how to apply IFRs. This flexibility is inevitable
because IFR is principles-based rather than
highly detailed and prescriptive American
accounting standards. For all its flaws and
merits, this new standard would be accepted
by 90 countries all over the world. American
and international standard –setters have
made steady progress over many years to
close the gap between America’s rules and the
rest.
Thailand raises interest rates
Bank of Thailand, the Central Bank of Thailand
increased the benchmark interest rates to 2.5
per cent sighting maintaining economic
stability as the main goal of the government.
The tightening of the interest was started
from August. But after three further rate
increases of 25 basis points each, the central
bank took a pause from its gradual tightening
policy in April. But again it resorted to hiking
the interest rate in June. The aim of this policy
is to wipe out the negative real interest rate
in Thailand, which is being experienced by the
country for quite some time. Further, the bank
also aims to maintain stability in the economy
in the long run. �
Compiled from various sources
By Jayasree Menon
IBA BulletinFor Subscription kindly contact the Editorial Department, IBA
Tel. : 022-2217 40 40 • Fax : 022-2218 42 22
39IBA BULLETINJULY 2005
Book : Fiscal Deficit and Inflation in India
Author : Ashutosh Raravikar
Price : Rs. 385/-
Total Pages : 252
Published by : Macmillan India Ltd., New Delhi.
Not very long ago, Michael Faraday,1 the
inventor of electricity had showed proof of his
discovery to his Prime Minister. When his
Prime Minister asked him what use it was –
‘Who knows Sir’, Faraday replied, ‘one day you
might be able to tax it’2 . Any one can
understand the embarrassment of a genius
who could not elicit an encouraging word
from those around him who can hardly
foresee the future beyond a few years. At
present, no one can think of life without
electricity (taking, of course, massive, nation-
wide power cuts. With more power-cuts, the
value of electricity is realised more). The world
is replete with hundreds of such examples of
how a potentially wonderful idea of an
inventor (like train, flight, car, medicine,
ambulance etc. to name just a few) is
discouraged by the contemporaries only to
be acclaimed many decades/centuries later
by millions and utilised by billions worldwide
to alleviate human sufferings and misery.
Consider these fantastic comments (read
criticisms) : Artificial flight (aeroplane) is
impossible. Transmission of television
pictures through air is not possible due to fog
(yes, you read it right, fog). Of all the gaffes,
this one takes the cake: “Telephone has no
(read my lips: NO) commercial application”.
“A man who lives on his past income is a wise
man. He who lives on his current income is a
careless man. The man who lives off his future
income is a brainless man”, said a finance
expert. However, a government living off its
future income, others money and borrowed
time is considered to be a great government.
How may of us still remember the college
dissertation we completed, leave alone
preserving a copy of it? Many, over the years
might have forgotten the topic of their
dissertation. Not Raravikar. He took it out and
presented an ‘improved’ version to the public.
A person thinking logically is a nice contrast
to the majority, they say. Raravikar thinks
logically and thinks differently too. What is
more? He flashes out reams after reams of
evidence in his defence. The common belief
is that the fiscal deficit and rising price level
has a casual nexus between them. Raravikar
swims against the tide (born fighter?). He says
a definite, emphatic ‘no’ to the common idea
and argues convincingly as well.
This book is divided into 5 crisp Chapters. The
Chapter 1 deals with the Background. Chapter
2 discusses the Fiscal Crisis in Indian Economy
while Chapter 3 talks about the Budget
Deficits: Concepts and Trends. Chapter 4
elaborates on Budgets and Inflationary Trends
in Prices. Naturally, when the book is on ‘Fiscal
Deficit and Inflation in India’ can the
discussion on ‘A Nexus Analysis’ be far behind?
So, exactly the same is the last and final
Chapter 5. He gives a number of suggestions
in the last chapter (for which not many in India
have the time and patience). A brief
bibliography and appropriate index
completes the book. The book is slim, crisp
and pocket-novel-sized (well, almost).
The foreword is from none other than
Prof. Bhalchandra L. Mungekar, the famous
Vice-Chancellor of the famous University of
Mumbai and the foreword should be read
fully to be enjoyed. Any educated person can
read English, but only an intelligent man can
read ‘between-the-lines’. A reader of the
foreword can write another book on the
implicit wisdom of the foreword itself.
Only a few legendary organisations like
Reserve Bank of India gives so much freedom
and encourage creativity. That is why such
institutions remain distinguished. Any
organisation, which stifles creativity, faces a
natural death, not because of the external
adversaries but because of internal enemies
who are self-centred and egoistic to the core.
This is the “disease”3 which ails Indian
corporates. They choke the oxygen supplies
and the oxygen suppliers to any organisation.
The author of the book under review, working
in RBI seized the opportunity and had
authored a good book. One wishes that other
scholars too, take out, dust and publish their
dissertation and their wonderful ideas for
common good than keeping the knowledge
to themselves. Let the ‘knowledge-seekers’ of
the world unite. Let there be light and debate.
The book is recommended for all persons who
are concerned about the well being of India, the
policy makers, economists and students,
especially for those who want to walk away from
the beaten path and contribute to the mankind
in whatever way possible. For organisations,
societies and families to march ahead towards
prosperity and strength, the GOLDEN RULE of
Ted Turner of CNN can be followed: “Either lead
or follow or get out of the way”. Like the water
finding a roundabout route to cross a blockade
on its way. If lifeless water can find a solution to
an obstruction, the men who have the sixth
sense can surely find one. �
Reviewed by:Shri. K. M. Thirunavukkarasu,
Assistant General Manager,Reserve Bank of India, Mumbai.
End Notes :
1 Critics’ Gaffes, Ronald Duncan,Macdonald & Co., London and Sydney,1983. An excellent collection of severecriticisms (by detractors or due to pure,green jealousy or for other reasons) onmany famous authors, playwrights,composers, painters, scientists includingBeethoven and Shakespeare. Price :Sterling Pound 5.95, but really worthbillions and billions of dollars.
2 Italics are mine.
3 The disease, which stays in one’s ownbody, feeds from the same body anddestroys the very body it had benefitedfrom. A Tamil saying. (Verbatim in Tamillanguage : ‘Koodave irunthu kollumviyadi’).
Book Review
IBA BULLETINJULY 2005
40
A read of the book ‘Bond and Money markets’
depicts, the author Ms. Shefali’s
understanding and control over the subject.
Even though, it is a complex subject, Ms.
Shefali dealt with it, in a manner which is easy
to read and assimilate.
With financial reforms and deregulation of
markets, rapid changes have taken place in
financial Institutions, more so, in Banking. A
new array of financial services encircling all
aspects of financial needs of the customers
have come into the picture. Dis-
intermediation has taken place and medium/
big borrowers are approaching the Debt and
Money Markets directly. In this backdrop,
understanding the Bond and Money Markets
has become a necessity for financial students,
as well as experts.
The features of Debt Securities, kinds of Bonds
besides related terms like yield, nominal yield,
current yield, STRIPS etc., are well explained
in the chapter Indian Debt Markets. This is
followed by a commentary on Central
Government Securities which is quite
interesting and throws light on various
aspects like the need to borrow through
securities by Central Government, the role of
securities in financial markets etc. The
changes occurred in Debt and Money
markets during pre and post reform period,
the relation of fiscal deficit with issuance of
securities by Government, various types of
securities like G. Secs, State Government
Securities and Agency Bonds and their
features are well explained. The role of Primary
Dealers is also clarified in a lucid manner. The
annexure given on ‘Liquidity Adjustment
Facility’ is very useful for the readers.
Treasury Bills and different methods of
auctions to sell the Treasury Bills by Reserve
Bank of India are well described, followed by
lucid explanation of State Government
Securities and RBI initiatives as debt manager
to the State Governments. The fiscal and
monetary management and the role of
Reserve Bank of India are clearly stated.
Call money markets, its features, functions and
recent changes that led to ‘Repo Market’ and
steps initiated by RBI to regulate Bank’s
operations in money markets are aptly
covered.
The Annexure 1 & 2 given to Corporate Bonds
listing Rating Symbols, SEBI guidelines for
issue of Debt Instruments are particularly
useful to financial students.
As a corollary to Corporate Bonds, the advent
of Commercial Paper and Certificate of
Deposit and their features, regulations, issue
mechanism etc., are thoroughly stated. The
distinction i.e., Commercial Paper are issued
by Corporates and Certificate of Deposit are
issued by Banks and Financial Institutions is
described in an unambiguous manner to the
benefit of financial students. Clarity of
expression is the hall mark of this book.
Ready forward contracts or Repos have been
dealt with in a step by step method, right from
Repo concept to calculation of interest, issue
of Repos, RBI guidelines etc. collaterised
borrowing and lending obligation, a newly
developed product to cater to the needs of
non-bank entities has been explained.
The coverage of the topics, Bond Market
Indices and Benchmarks, Secondary Markets
and Trading in Government Securities is
comprehensive and various aspects like NDS,
CCIL, WDM, GILT etc., have been clearly
explained.
Book : Book on Bond and Money Markets
Author : IIB &F
Publishers : Taxmann Publications Pvt. Ltd., 59/32, New Rohtak Road, New Delhi 110 005.
Price : Rs. 120/-
Pages : 167
The regulatory and procedural aspects
relating to Public Debt Act 1944, SEBI and
FIMMDA are thorougly described. Annexure
1 given to Chapter on Regulatory and
Procedural Aspects is very informative and
highly useful.
The Chapters on Bond Valuation, The Yield
Curve, Duration, throw light on important
aspects related to valuation of bonds,
different types of yields, interpretation of yield
curve, theories of term structure of interest
rates, characteristics of duration, types of
duration. It is indeed a complex stuff
explained in a cogent manner.
The last chapter contains valuable
information relating to Fixed Income
Derivatives. Interst Rate Swaps, Forward Rate
Agreements, benchmarks for interest rate
swap market etc., are covered in an extensive
manner.
Bond and Money Markets is a complicated
and complex subject. However, the manner
in which the author has presented the subject
matter in an easy to read and understand style
is commendable.
The author needs acclamation for the effort
to throw light on a subject that is taking its
roots in Indian Financial markets.
I strongly recommend this book to a) financial
students b) officials of Banks and Financial
Institutions who are involved in Bond and
Money Market Operations.
Priced at an affordable Rs. 120/- the content
outweigh the rate of the book. �
Reviewed by : V.S.R. MurthyGeneral Manager
Union Bank of India, Mumbai.
Book Review
41IBA BULLETINJULY 2005
Indian Institute of Banking & Finance (IIBF) has
been in the forefront of imparting quality
education of provide developing India with
knowledge rich, capable & efficient
professional in banking & finance. IIBF has
come a long way from being an Institute of
Bankers to the present level of encompassing
all banking & finance activities with a view to
provide technically sound financial
professional through perpetual education,
training and evaluation.
M/s. Taxman Publications Private Limited are
reputed publishers of books on Tax &
Corporate Laws and professional books on
finance & legal matters.
It is but natural that when two giants in their
respective fields join together, the students
& professionals alike are endowed with a
wonderful book, i.e. Mutual Fund Industry –
Products & Services.
The book is a comprehensive commentary on
‘A to Z’ of Mutual Funds, progressively
structured in 8 chapters.
Chapter-I illustrate the concept of Mutual
Fund, advantages of investing in Mutual Fund
besides explaining the benefits of a
diversified portfolio offers. The ‘Lessons from
Evans and Archer’ given as appendix 1 is
very useful piece of study.
Chapter- II contain the origin of Mutual Fund
and it’s spread to USA & UK. The evolution of
Mutual Fund in India and the formation of
AMFI is well explained. The mergers &
acquisitions that took place in Mutual Fund
Industry, have been elucidated in an
Book : Book on Mutual Fund Industry – Products & ServicesAuthor : IIB & FPublishers : Taxmann Publications Pvt. Ltd., 59/32, New Rohtak Road, New Delhi 110 005.Price : Rs. 145/-
interesting manner. The steps initiated by
AMFI as self-regulatory authority (SRO) and
SEBI as regulatory authority, to rationalize the
functioning of Mutual Fund Companies are
well covered to the benefit of the readers.
Chapter – III is chiefly relevant to Indian
conditions, as it contain SEBI regulations &
structure given by SEBI to Mutual Funds. The
‘Three Tier’ structure of a Mutual Fund is well
portrayed in the chapter. Important points
like AMC, Trustee qualifications, duties,
rights & obligations are clarified.
In Chapter – IV Mutual Fund products are
highlighted as an alternate investment
opportunity and various Mutual Fund
products along with prescribed fee &
expenses that are billed to the investor are
given. The process of NAV calculation is
informative & knowledge enhancing. Add
on benefit of his chapter is income received
from Mutual Fund and its treatment for Tax
purpose.
Chapter – V explains the portfolio
management and various concepts involved,
i.e. Equity Fund Management & Index Fund
Management (Active Portfolio
Management & Passive Portfolio
Management). Investment styles and
hedging are deliberated in a lucid manner.
In Chapter – VI, various ways of measuring
return methods and the basis for such
methods explained. Not losing sight of ‘Risk
Factor’, different ways of arriving at risk are
analyzed. Different techniques to measure
the risk with realized return have been
elucidated to the benefit of readers. The
importance of Tracking & Monitoring the
performance of Mutual Fund has been
highlighted. The Appendix 1 (Indices for
Benchmarking Portfolios) & Appendix 2
(CRICIL Composite Performance Ranking
Methodology) will immensely benefit are
financial experts in honing their skills.
Chapter – VII covers the model portfolio
development keeping in mind the clients
investment goals & objectives.
In Chapter – VIII the regulation to protect the
interests of the Unit Holders has been
thoroughly described. SEBI regulations in this
regard are nicely explained. Trustee roles &
limitations, obligations are detailed and
role of AMFI are once again emphasized.
Annexure 1 to 11, given at the end of the book
are particularly useful in understanding
several aspects related to Mutual Funds and
the steps taken by Regulatory Authority to
protect Investor interests.
In its entirety, the book in a priceless,
knowledge rich, user-friendly guide to Mutual
Fund Products & Services. The content and the
high quality of the book mirror the efforts put
in by Ms. Rachana Baid & the experience is
instrumental in scripting this book.
The superior quality of the substance of the
book outweigh the price (Rs. 145/-). �
Reviewed by : V.S.R. MurthyGeneral Manager
Union Bank of India , Mumbai.
Book Review
IBA BULLETINJULY 2005
42
Book Review
In recongition of the need of the bankers to
strengthen the balance sheet and improve
the stake holders value, the Institute of
Banking and Finance. Mumbai has introduced
Diploma qualification in Bank Financial
Management. The curriculum under the
diploma combines thereoretical inputs with
hands on experience in financial decision
making with the help of computer simulation
exercise known as Bank Mod TM which might
import knowledge and confidence necessary
for the bankers for achieving the objective
before them.
This book provides a comprehensive
Book : Bank Financial ManagementAuthor : IIB & FPublishers : Taxmann Publications Pvt. Ltd., 59/32, New Rohtak Road, New Delhi 110 005.Price : Rs. 225/-Pages : 124
coverage and valuable insidhts into bank
financial management. The subject matter is
spread over seven modules comprising of (a)
introduction to Bank Financial management,
prepared by Shri S.N. Sawaikar, SBI (b) Interest
Rate Risk Management, prepared by
E. Madhavan and R. Raghavan, RBI (c) Credit
Risk, prepared by A.K. Trivedi, IndusInd Bank,
(d) Liquidity Management in Banks, prepared
by A.K. Gulla, SBI (e) Derivatives, prepared by
R. Raghavan, RBI (f ) Profitability of Banks,
prepared by B.C. Acharya, SBI and (g) Bank
Capital and Stock Valuation prepared by B.C.
Acharya, SBI. All authors are bank
professionals, having fundamental
understanding of various financial aspects of
business of banking and finance. However,
subjects are effectively presented with a
useful blend of theory and operations.
This book can be a stand alone study book
for bank and finance professionals. However,
it is a very useful text book for students
pursuing the Diploma programme in Bank
Financial Management. �
Reviewed by : Dr. T.K. ChakrabortyAdvisor, History Cell,
RBI, Mumbai.
INDIAN BANKINGYEAR BOOK - 2004
Indian Banking Year Book is one of our annual publications, which present an update on policy andregulatory framework with relevant database covering multifaceted aspects of banking and financialservices industry.
The Year Book is divided into three Parts. Part I contains nine chapters viz., (1) Indian Banking – An Overview, (2)Regulation and Supervision of Banks in India, (3) Financial Institutions, (4) Co-operative Banking in India – ABrief Review, (5) Indian Capital Market, (6) Non-Banking Financial Companies (NBFCs), (7) Insurance Sector, (8)Legal Reforms pertaining to Banking Sector and (9) Summaries of important Committees/Working Groups setup by Government of India/Reserve Bank of India. Part II contains relevant statistical information pertaining toIndian Banking and Part III contains profiles of IBA Members.
Year Book is prepared with the intention to provide latest information on banking and finance to various classesof readers.
This publication is priced at Rs.100/- (inclusive of postage charges). For copies, kindly contact the PublicationsDepartment, Indian Banks’ Association, Stadium House, 6th Floor, Block 3, Veer Nariman Road, Mumbai 400 020Tel. : 022-22894530 Fax : 022-2283 5638.
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lees Jen efove otj veneR nesiee efkeâ Jen Deheves efveOee&efjle
ØeefleceeveeW keâes Øeehle ve keâj mekeWâ~ �
June 2,2005
SIGNING OF VIII BIPARTITE SETTLEMENT
Shri A. K. Purwar, Chairman, State Bank of India and Chairman, IBA signing the Settlement flanked byDr. Dalbir Singh to his right and Shri V.P. Shetty to his left.
IBA team with Officers’ AssociationsIBA team with Workmen Unions
COMMUNICATION@IBA
The VIII Bipartite Settlement was signed on 2nd June, 2005. The settlement is uniquely historic for the reason that it is forthe first time in the history of bipartite negotiations at the industry-level that four Officers’ Associations and six WorkmenUnions signed the industry-level Joint Note/Bipartite Settlement on the same day, at the same venue in a joint function atIBA Office, Mumbai. Shri A.K. Purwar, Chairman, IBA and Chairman, State Bank of India and Dr. Dalbir Singh, Chairman andManaging Director, Central Bank of India (who was then Chairman, IBA, when the 8th Bipartite Negotiations commenced inOctober 2002), Shri V.P. Shetty, and Chairman of the Negotiating Committee, IBA Chairman, IDBI Ltd., alongwith othermembers of the Negotiating Committee were signatories to the Settlement fromt he management side.
BREAKFAST SYMPOSIUM13.5.05 Mumbai
As a part of knowledge sharing exercise with members of the Association, IBA organized a breakfast symposium on 13.5.05 at IBA’s Office,World Trade Centre, Mumbai - 5. The Speaker was Dr.Sumit Agarwal, Senior Vice President, Credit Risk Management Executive Small BusinessRisk Solutions, Bank of America (Rockville, MD), Adjunct Professor of Finance, George Washington University, Washington DC.
Dr. Agarwal made a presentation to senior bankers in the areas of Basel II Accord and Capital Allocation, Risk Management of Small BusinessLoans and Relationship Lending. Presentation was followed by interactive session.
June 2,2005
IBA BULLETINJULY 2005
53
RETAIL BANKING DIRECTIONSChallenges and Opportunities
MUMBAI May 28, 2005
On May 28, 2005, Banking Frontiers and IndianBanks’ Association jointly organized a conferencetitled “Retail Banking Directions: Challenges &Opportunities”. The keynote was presented byShyamala Gopinath, Dy. Governor, RBI. She said thatretail banking has turned out to be the key profitdriver with retail portfolio constituting 21.5% oftotal outstanding advances. Also the overallimpairment of the retail loan portfolio was muchlower than bank’s gross NPA. She mentioned thatretail loans constitute less than 7% of GDP in India,compared to 55% in South Korea, 52% in Taiwan,33% in Malaysia and 18% in Thailand. She thendeliberated on the two key aspects of retailbanking - cards and housing. She emphasized theneed for constant innovation in retail banking andin bracing for another paradigm shift.
business processes. According to Deepak Patil,banks have to constantly understand theircustomers and respond accordingly. According toNarendrakumar Baldota, co-op. banks are providingall the facilities that public and private sectorbanks are doing, including ATMs, demat, etc. S.C.Basu, Chairman of Bank of Maharashtra, there arethree challenges — creation of market,(particularly rural areas), packaging of product andsystem of delivery of services. Satish Marathe, CEO,United Western Bank, said that there is a need forsecondary sale of assets that are impared,including cars, houses, etc., ARCIL deals only in highvalue assets. Kumar Karpe of IBM said that banksneed to understand how they can create newproducts and how they can go to market whilekeeping a watch on costs so that project costs arenot overshot. He said that banks can optimize theiroperations by centralizing process that arecommon across different business activities.
In the session on top management MIS, Shantanusaid that it is all right for such data to sit on theservers. But critical data should come to thedecision makers immediately over the phone orthe web. There should be alerts wheneversomething crosses a threshold level. According to
This was followed by a CEO panel discussion.According to G.V. Nageswara Rao, CEO of IDBI Bank,the way the customer interacts with the bank andwhat he expects from the Bank has undergone arevolutionary change. Today customers seek moreadvice from their banks, such as what investmentproducts he should be looking at. Banks can stepup the quality of their analysis and advice. Withoverseas markets being opened up by RBI, the dayis not far off when banks will be advising customerswhether they should be investing in Koreanequities or US junk bonds. According to R.N.Ramanathan, Dy. MD SBI, in today’s fiercelycompetitive scenario, every bank wants to growthe balance sheet, and to grow the assets, bankshave to find the resources. Other challenges hereferred to are HR, technology, outsourcing, riskmanagement, compliance and re-engineering of
Dr. Anand Dhingra from IBM, worldwide there arecertain best practices, and they have been codifiedin certain business models. He then went on todescribe the business models. According to PankajPatharphod, IT Head at ABN Amro Bank, earlier theEDP department used to churn out a lot ofoperational reports. But now a lot of MIS isdovetailing towards business MIS. There is atremendous focus on overall customerrelationship and less on the number of systemsthat the customer touches. Sandeep Mukherjeefrom DCB said that banks need to analyze a lot ofexternal data such as malls coming up and thendetermine whether they have the capability toservice that opportunity.
On the ATM front, one of the points of debate waswhether ATM should be seen as an instrument forpushing the topline or the bottomline, ICICI Bank
representative O.P. Srivastava argued that queueswere building up at the ATMs and hence it waspreferably to migrate transactions other than cashwithdrawal from the ATM to other channels. Hesaid that ICICI Bank is putting up kiosks next to itsATMs to handle non-cash transactions. HDFC Bankrepresentative Rahul Bhagat was of the opinionthat non-cash transactions take only a smalladditional time and hence it was worthwhile forbanks to put up additional products on the ATM,thereby making the ATM a full fledged channel.
In the cards session, Mr. Pasricha of RBI said thatcards are spreading and card spends are increasing.He said that RBI wants cards business to grow in asecure manner. Pralay Mondal of HDFC Bank,economic indicators are rising which will lead tomore disposable income, which is good news forretail banking. Today less than 1% of the paymentshappens through cards and hence there isimmense scope. According to Pani, lifecycle ofICICI Bank, cards are unique because they combinetransaction processing with consumer lending.This industry has always delivered positive growthfor last 30 years in terms of consumer spend.According to Utul Kapadia from IDBI, the
exponential growth indicates that there is a lot ofuntapped potential ahead. He said that the cost ofthe network, infrastructure and PoS terminal aredeclining and the markets are maturing. Accordingto Shailandra Mittal from ReadyTestGo, thechallenge is how to capture spends on electricity,water, groceries, etc.
Panel Discussion (S.C. Basu, Dy. Chairman, IBA & CMD, B.O.M. third from left )
Attentive AudienceIBA BULLETINJULY 2005
54
IT@BFSI CONCLAVETechnology solutions for Business Transformation
June 7, 2005 MUMBAI
BFSI Conclave, country’s first IT Conferenceconsisted of four sessions covering topics onTechnology the key differentiator-implementation challenges, IT as an enabler,Reinventing with outsourcing and Security andRisk Management - Business Continuity whichincluded eminent speakers viz. Shri Ashok Kini,Managing Director, State Bank of India, Ms. H. A.Daruwalla, Executive Director - Oriental Bank ofCommerce, Shri T. S. Vijayan, Managing Director -Life Insurance Corporation of India and manyothers from the financial sector.
Smt. K. J. Udeshi - Dy. Governor, RBI in her keynoteaddress at the BFSI Conclave, mentioned, that RBIwill come out with new guidelines on outsourcingto improve the regulatory supervision and riskmanagement of outsourcing which will coveraspects related to operational and prudential risksarising out of outsourcing of banking activities bybanks.
“RBI has constituted an internal group onoutsourcing and based on its recommendations,regulatory guidelines will soon be issued. The
guidelines apply to banks operating in India. Themove is not towards curbing BPO, but to put inplace checks and balances to lower incidence offraud. “A number of IT-related services wereoutsoureed (by banks). This is posing a challengeto operational risk management and dataintegrity. Caution needs to be exercised as the newBasel norms require banks to handle voluminousdata,” said Ms. Udeshi, “Outsourcing has its ownchallenges, specially in drafting of legal contracts,”she added. The new guidelines will addressregulatory concerns on operational risks and dataintegrity. RBI is also concerned that outsourcingcould lead to transfer of banking risks, managementand regulatory compliance to third parties, overwhom RBI may not have any regulatory control.
Ms. Udeshi spoke about extending the reach ofbanking to rural areas. She mooted the idea of bankssetting up information kiosks in villages. “There aresix lakh villages in the country and one bank branch
per 18 villages. Banks can set up an information kioskfor every two or three villages. At the click of themouse, the farmer will know his account balanceand interest due to him and have a host of value-added services at his disposal,” she said.
“The kiosk can double up as a vending machine,but the only constraint will be adequate power
supply. Customers can use these kiosks. What betterway can there be to free farmers from the shacklesof moneylenders and middlemen,” she said.Emphasising on the potential in rural credit, Ms.Udeshi said while industry with a 22% share in the
country’s GDP accounted for 45% of gross bankloans, agriculture with 20% of the GDP, receivedabout 11% of advances. She said banks need to dealwith data transmission in a safe and secure way ona priority basis.
Keynote Address : Smt K. J. UdeshiDy. Governor, RBI
Ashok Kini, MD, SBI speaks on ‘‘IT as an enabler"
Welcome Address by H. N. Sinor
Speakers at the Conference(L – R) R. Jangoo Dalal; T.S. Vijayan; Ashok Kini; Ms. H. A. Daruwala; T. Srinivasan
Cross section of Participants 55IBA BULLETINJULY 2005
IT@BFSI CONCLAVE9th June, 2005 Bangalore
“With the increasing use of automation in bankingand communication, networking can be used fordistributed processing which would also help toreduce the costs besides improving efficiency,” saidShri V Leeladhar, Dy. Govenor - RBI, in his keynoteaddress at the BFSI conclave. While major Indian citieswere enjoying the fruits of banking automation, hesaid, there was a need to take it to the mid-sizedtowns and even rural areas. “The manufacturingsector has revived through a process of re-engineering and this is something that Indian banks
could f ocus on notably in the area of job processes,” he added. While rising competition was a certainty, there was even a possibility ofcompetition coming from unexpected quarters like retailers providing easy finance scheme to purchase durables. Earlier, welcoming Mr.Leeladhar, Chairman of Kamataka Bank, Mr. Ananthakrishna noted that the global BFSI segment was witnessing robust activity. “Globallybanks, financial services and insurance (BFSI) segment is witnessing annual investments to the tune of $6 billion,” he added. Mr. K. N.Prithviraj, CMD of Oriental Bank of Commerce, said that integration had become relatively easier given the fact that both OBC and GTB hadthe same technology platform – Finacle. Mr. Jangoo Dalal, senior VP at Cisco Systems — India and SAARC, said that with banks re-configuring their delivery systems, platforms like internet and ATMs were becoming common place. Mr. T. Srinivasan, MD of Mercury, saidthat while outsourcing was becoming common-place, there was a need to define the contours of this phenomenon.
M. Balachandran, CMD, Bank of India K. N. Prithiviraj, CMD, OBC
IBA BULLETINJULY 2005
56 Seminar in progress
V. Leeladhar, Dy. Governor, RBI Welcome Address by Ananthakrishna,Chairman, Karnataka Bank Ltd.