How do you view the Indian banking sector's significant progress since Independence ?

The Indian banking industry has made significant progress since independence as is evident from the fact that today the nation has over 65000 bank branches, serving an average population of 15,000 with over Rs.10,00,000 crore of deposits and over Rs.5,15,000 crore of advances. While on the eve of independence, Indian banking system had inherited 2876 branches serving an average population of 82,000 with Rs.860 crore of deposits and Rs.470 crore of advances. Indian banking network is today said to be the largest banking network in the world.

The Indian banking industry has been involved in a nation building process in a big way. By taking branch network to the far-flung areas of the country, the Indian banking industry has spread banking habits allover the country. This has resulted in monetisation of a large part of the economy and helped in raising the country's savings rate. The spread of equity cult to the rural and semi-urban areas has been possible on account of presence of the branch network of public sector banks in these areas. This has led to shift in preference for the saver class from physical to financial assets.

On the lending front, sectors such as agriculture, small scale industry would not have flourished without the helping hand of the Indian banking industry. Green revolution in India is primarily due to the timely credit from the Indian banking sector.

What are the key issues faced by banking sector today?

The barriers of entry for private sector and foreign banks are being progressively eased out. This has enhanced the competition for the existing banks in India. There is, therefore, an urgent need for developing sophisticated financial products and innovations in market products. New breed of private sector banks has already jumped on to the bandwagon of developing new tech-savvy products, with a view to catering to the needs of their customers. Public Sector Banks, in particular have, therefore, to speed up their efforts in devising new tech-savvy products for attracting high net worth customers.

The level of non-performing assets in the Indian banking industry is a great concern. Though during the recent years, the ratio of net NPAs to net advances has been showing improving trend yet in absolute terms it is still at a very high level. Hence, cleaning up of balance sheet has become the crucial issue in tile Indian banking industry today. NPAs have to be reduced drastically and adequate provisioning for bad and doubtful debts has to be made.

Which are the thrust areas for banking sector in India?

Technology upgradation helps banks in reducing costs, increasing volumes and facilitating customized financial products. Technology has also helped in accelerating the globalisation process. The entire world has become a global village. It has opened up new vistas for the banking industry world over. Growing consumer acceptance of electronic channels is compelling banks to provide Internet banking facilities because customers have already started demanding fast, convenient and glitch-free banking services.

Banking on the Internet has become a reality in India too, as this will enhance the reach of banks to their customers and will make widespread availability of information about products to the customers. Information Technology and the Internet revolutions, in India, are poised to take the banking scenario by storm.

With a view to keeping the pace with the explosive speed of financial innovations, continuous improvement in the technological infrastructure has become the thrust area for banking sector in India. With the deep penetration of Internet, PCs and Mobile Phones, the face of Indian banking is going to be changed radically.

One of the factors identified to be behind the collapse of some of the banking systems in the East Asian Countries is inadequacy in the corporate governance of banks. It is being said that one of the lessons from the 1997 Asian debacle is that good governance of banks is an essential element of sound banking system. Good Governance, as applied to banks, is essential for a well functioning economy as it provides, incentives for management to act in ways that raise the bank's net present value and assure shareholders an adequate return. Sensing the importance of Corporate Governance the Banks have been advised by the SEBI to formalise the Code of Corporate Governance. Good corporate governance may help in creating an environment conducive to the sustained growth of the banking industry. Good Corporate Governance has also become the thrust area for banking industry in India.

Where does Indian banking sector stand compared to international level?

After adopting the policy of globalisation and liberalisation, tile financial markets are being integrated worldwide. Vulnerability of financial system in a particular country may have international implications. Like we have already seen this happening at the time of East Asian crisis. An urgent need for monitoring and supervising closely the financial system of our country is, therefore, being felt. Standards of Accounting practices, financial reporting and disclosure norms have to be of high order. 

However, during tile recent years tile Indian financial system has been undergoing the consolidation phase, which has led to increased resilience of the Indian economy, as is evident from the fact that the Asian crisis had the mute impact on the Indian financial system. A significant progress has been made in strengthening the Indian banking system by initiating the financial sector reforms in our country. Prudential, provisioning and capitalization norms are being brought in line with the International standard. Efforts are on for introduction of maximum transparency, disclosure and accountability in the Indian banking system.

What are your views on the future of Indian banking sector?

The future of Indian banking industry seems to be bright. Big giants, like State Bank of India, will have to prepare themselves for increasing their operations at the international level, as globalisation and liberalisation has opened up new vistas for them. Adoption of new technology has become crucial issue for the Indian banking industry. Those who don't adapt themselves to the changing technology environment may find themselves out of the existing banking system, Indian banking sector is poised to meet the changing global environment.

What is your opinion about 'Open Economy of India ?

After opening up of Indian economy during the year 1991-92, Gross Domestic Product (GDP) in our country has grown by an average of 6.4 per cent during the period 1992-93 to 2000-01, as compared to the average growth rate of 5.4 per cent during- the period of 1980-81 to 1991-92. Services sector has also performed exceptionally well during this period by recording an average growth rate of 8.2 per cent (1992-93 to 2000-01) as against a growth of 6.4 per cent during the decade 1980-81 to 1991-92. 

Exports have recorded robust growth of 20.8 percent during the year 2000-01, trade deficit has fallen sharply, current account deficit as per cent of GDP has fallen to 0.5 per cent, which suggests a very comfortable balance of payment position. Foreign Director investments (FDI), Foreign Institutional Investments (FII), NRI deposits, etc. have helped in crossing an all time high level of $43 billion in foreign exchange reserve. Forex reserves are now sufficient to meet the import requirements of our country for 10 months, as against just 6 weeks during the year 1991.

All the above said developments are testimony to the fact that opening up of Indian economy has yielded rich dividends to the nation.

Any Comments on Government policy?

The Government is playing a major role In tile development of Indian Financial System. Financial sector reforms are already underway. Measures taken in line with the recommendations of the Narasimham Committee on the issues like Prudential Accounting Norms, Capital Adequacy Norms, Risk Management System, Asset Liability Management System, Disclosure Norms, Technology developments and Legal Issues have played an effective role in strengthening the Indian banking system.