While the ongoing economic re- forms have instilled stiff competition among banks and non-bank financial institutions on the one hand, faster economic growth has offered immense opportunity for banking business on the other hand. Market-based financial techniques have taken the key role for diversification of product range. In recent times, the exemplary growth of banking in the emerging economies of Brazil, Russia, India and China may be attributed to improving economic conditions, liberalization, and changing consumer demographics.
Global factors have emerged crucial in Indian monetary policy having a significant bearing on domestic prices. Robust growth for the third successive year in 2005-06, backed by sustained manufacturing activity and impressive performance of the services sector with reasonable support from the agricultural activity, has offered immense opportunity for faster expansion of banking business in the country. However, upward inflationary pressure due to high and escalating oil and commodity prices remains a primary concern across the globe. The forces of global scenario of hardening interest rate, albeit slowed down in recent times, are expected to exert upward pressure on domestic yield, affecting profitability of banks from treasury business.
In recent times, the exposures of Indian banks in global business are increasing through Offshore Business Units, Representative Offices and Foreign outlets. More and more Indian banks are also going global. Against this backdrop, the adoption of Basel II is of prime importance, particularly to increase the risk-bearing capabilities of Indian banks. Moreover, under WTO conditions, the Basel II Accord is expected to play a crucial role in near future.
Core banking has emerged as the mainstay for banks' profitability during recent years. Steady interest spread, consistent decline in operating expenses and stable fee-based income have helped to enhance core profitability during 2005-06. However, tightening liquidity situation and higher cost of raising incremental resources have been a few concerns in the banking circle during the year. |
