CURRENT ISSUE

Today the Indian banking system is among the best in the world and the years to come may see them taking on the global behemoths. 84 percent of the survey respondents described the performance of the banking industry as Very Good in the fiscal 2004-05. Newly granted autonomy would certainly make the PSBs more competitive and profitable, said 88 per cent respondents, though some more changes considered desirable. 48 percent of overall respondents and 67 percent of private bank respondents expressed the need to relax the prescribed limit of single ownership and cross holding cap in the Ownership and Governance guidelines for Private sector Banks. Although 72 percent of public & private sector bank respondents expressed their satisfaction with the recently devised road map for the foreign banks, majority of foreign Bank respondents (75 percent) expressed complete dissatisfaction with this roadmap. 75 percent of the foreign bank respondents expressed that time frame prescribed to expand through Merger & Acquisitions should have been less

and equal number voiced that the guidelines are not in line with international norms. Consolidation in the banking industry followed by Technological upgradation was considered as key factors currently required to enhance the international competitiveness of the Indian banks. Free trade agreements (FTA) considered a positive step in the area of banking by almost all respondents. The available market size and the level of access provided to Indian banks in foreign countries should be the key factors in consideration, while entering into such agreements, as highlighted by 76 percent of banks Rise in the interest rates imminent say 64 percent survey respondents. Majority expects increase by 0.5 percent. 88 percent of Public and private sector banks considered HRD related issues as one of the biggest challenge in the process of consolidation. 83 percent respondent banks claim to have more than 85% level of technological advancements in their banks with remaining banks stating it to be around 65-85%. All our respondents emphasized that customer retention is significantly important for the profitability of the banks.

 More than 70 percent of banks felt the need of advanced security softwares and stricter security policies to safeguard and ensure the security of customer information. Some of the legal changes suggested are detailed in the survey. 53 percent of respondent banks considered 6 months transition period to shift from MIFOR rupee benchmarks for interest rate derivatives to be inadequate. Majority of banks felt that their Risk management framework for implementation of BASEL II was well in place. 53 percent of our survey respondents intend to increase their retail portfolio by more than 25% in the year 2005-06. Rising Indebtedness followed by lack of Technological advancements were identified as biggest challenges that could affect the future growth of Retail banking. 80 percent of survey respondents did not agree with the notion that housing loan is creating a bubble. Substantial progress made by banks in cleaning up the NPAs from their balance sheets, was largely attributed to SARFAESI Act and increased provisioning on Doubtful debts.

 Absence of Secondary Market for the trading of security receipt issued by ARCs was identified as one of major problem in Indian Model of NPA management. Separate NPA norms for the farm and the SME sector were recommended. 96 percent of all banks claim that the current growth of non-food credit is sustainable for about 3-5 years. Detailed information on banks sectoral exposure of credit reveals that over two-thirds of the credit flow has been on account of retail, housing and other priority sector loans. Banks credit flow exposure to large Enterprises continues to remain buoyant with recent indications that credit to agriculture and Micro credit has also picked up. 71 percent of our survey respondents did not consider SMEs as an avenue of forced lending. 95 percent of banks intend to increase their exposure further in the area of Micro Credit financing.