PES1 AAALYSIS

PEST analysis stands Ior "Political, Economic, Social, and Technological

analysis" and describes a Iramework oI macro environmental Iactors used in
the environmental scanning component oI strategic management.

Political Analysis:
The expected integration oI various intermediaries in the Iinancial system would
require a strong regulatory Iramework, the report states. It would also require a
number oI legislative changes to enable the banking system to remain
contemporary and competitive. Underscoring that there would be an increased
need Ior selI-regulation, the report states that development oI best practices
could evolve better through selI-regulation rather than based on regulatory
prescriptions.

For instance, to enlist the conIidence oI the global investors and international
market players, the banks will have to adopt the best global practices oI
Iinancial accounting and reporting. It is expected that banks would migrate to
global accounting standards smoothly, although it would mean greater
disclosure and tighter norms, the report adds.

Notwithstanding the limited time ahead, the expectations, suggestions and
recommendations oI the Banking Industry Vision report are well within the
realm oI realisation in part or whole. The Iirst phase oI banking reIorms was
born out oI panic. The second phase can be implemented Irom a position oI
strength and conIidence in a compressed time-Irame.




Economic Analysis:
THE INDIAN economy has shown tremendous growth over the past decade.
This statement may seem odd to the economists who keep comparing the
growth rates to that oI China or the East Asian Tigers. These countries have
deIinitely shown good economic growth, but India's is nothing to be scoIIed at.

This assertion is not being made by comparing the GDP growth, FDI inIlow,
changes in per capita income and other economic criteria, but by looking at the
increase in the availability oI goods and services.
A while ago, visiting Ioreign countries, one used to wonder when India would
catch up. People walking around with mobile phones, shopping malls
overIlowing with goods, and even dozens oI branded water. Coming Irom India,
where water had to be boiled and Iiltered beIore consumption, these countries
seemed like paradise.
Now, a decade later, India seems to have caught up with some oI these things at
least. Take the cell phones and pagers. Hong Kong went through the pager
phase Ior two or three years beIore going cell. In India, pagers did not take oII,
while cell phones clicked. The accelerated telecommunications revolution has
made cell phone easily aIIordable. India is no longer the backwaters oI Ior hi-
tech products.
An economist may argue that availability oI cell phones and branded water does
not indicate a developed economy. But even they have to agree that India seems
to have changed Irom a country oI shortages to one oI plenty. And along with
plentiIul supplies, there is also variety.
In the early 1990s, there were three varieties oI car models/makers
Ambassador, Fiat and Maruti 800. Today there are apparently some 500 models
Irom more than 10 manuIacturers.

Developmental economists may argue that plentiIul supply oI goods and
services does not mean that India has become prosperous and that India has a
long way to catch up with the developed economies. But one has to agree that
the India has made much progress over the past decade.

Western economies have grown partly because oI consumption economics.
Those economies produced large number oI goods, employing more and more
people to produce these goods. These employees in turn consumed the goods,
creating a virtuous cycle. Maybe India is Iollowing this path.
All the good are available in plenty. Now the living standards oI people have to
be improved so that they start consuming these goods. Maybe, that is why the
new Finance Minister wants to put more money in the housewives' hand.


Social Analysis:
All these developments need not mean banks will give the go-by to social
banking. Rather than being seen as directed lending such lending would be
business driven, the report predicts. Rural market comprises 74 per cent oI the
population, 41 per cent oI the middle-class, and 58 per cent oI disposable
income.

Consumer growth is taking place at a Iast pace in 17,000-odd villages with a
population oI more than 5,000. OI these, more than 50 per cent are concentrated
in just seven states. Small-scale industries would remain important Ior banks.

However, instead oI the narrow deIinition oI SSI based on the investment in
Iixed assets, the Iocus may shiIt to small and medium enterprises (SMEs) as a
group. Changes could be expected in the delivery channel Ior small borrowers,
agriculturists and unorganised sectors also.

Technological Analysis:
Technological developments would render Ilow oI inIormation and data Iaster
leading to Iaster appraisal and decision-making. This would enable banks to
make credit management more eIIective, besides leading to an appreciable
reduction in transaction cost.
To reduce investment costs in technology, banks are likely to resort more and
more to sharing Iacilities such as ATM networks, the report says. Banks and
Iinancial institutions will join together to share Iacilities in the areas oI payment
and settlement, back-oIIice processing, data warehousing, and so on.
The advent oI new technologies could see the emergence oI new players doing
Iinancial intermediation. For example, according to the report, we could see
utility service providers oIIering, say, bill payment services or supermarkets or
retailers doing basic lending operations. The conventional deIinition oI banking
might undergo changes.