RBI DEPUTY Governor V. Leeladhar has said that two of domestic banks in India have turned like Foreign Banks. Approximately 74 per cent of holdings of ICICI and HDFC bank are in the hands of foreigners. As per RBI released roadmap for foreign banks, which is in line with WTO commitments given by India in 2005, the phase II of the roadmap has to start from April2009. As per Phase II of roadmap foreign banks may be permitted to have overall investment of 74 per cent in the private banks of India. But ahead of the deadline by more than 1year RBI has allowed investment by foreigners in the two banks to nearly 74 per cent. This reflects that RBI is moving fast on the adoption of its declared roadmap for foreign banks in India.
Post 2009 banking sector scenario will implies new threats as well as opportunities. Capital is going to play a crucial role in the banking sector. Since by then bank need to grow in size of global standard, need to have robust risk management practices, advanced technology, skilled manpower and very sound marketing practices. All these require huge capital investment by Bank.
As per RBI PSU banks in India will require an amount of Rs 2980 billion of additional capital to maintain a CRAR of 12 per cent by March 2010. Basel II implementation will attract a huge investment. By concentrating on high profit areas like trade finance, institutional banking, corporate and investment banking, foreign banks have proved that they are more profitable than their counterpart domestic banks. Post 2009 entry of new players will intense the competition for domestic banks.
Domestic PSU banks are least active in FDI and FII areas and foreign banks are attracting huge foreign investment coming to India. Post 2009 entry of new foreign bank will further reduce the slice of such investment for domestic bank. So post 2009 Indian domestic PSU banks have to improve their brand image so that foreign funds coming to India will be routed through them only. Brand image up gradation will require improvements in several parameters including capital.
With the opening of economy the importance of risk management in Banking has become of paramount importance. To handle risk of business domestic banks will require management lot of human capital investment as well as funds. In the areas of derivatives the human expertise is minimum in India. Lot of things has to be done by Domestic PSU banks in risk and derivatives handling.
Post 2009 in the areas of retail banking also the PSU banks will face great hurdle. In retail, Private banks like ICICI have developed leadership. It may be very likely that post 2009 the small efficient private sectors banks be acquired by foreign banks like HSBC and these foreign banks will acquire expertise of these Private banks in the areas of retail.
A lot of challenges are waiting for PSU bank ahead of 2009. Survival of tech savvy, good global sized, with huge capital and smart skilled manpower bank is guaranteed while a bank having characteristic contrary to this will be acquired by big banks.
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