The ratio of bank assets to GDP of Indian banks is far less than most of the developed and developing countries. So, there is great scope for credit expansion. There are small banks with lower asset base which can face survival problems due to rising competition and economic cycle shocks. Banks will continue to be the major source of funds for the industry.
Banks will wither away, but banking will live long" was the refrain of many learned financial pundits in the advanced countries a decade ago. This arose out of the undisputed fact that the main functions performed by banks, viz., deposit collection and lending to businesses, have been virtually snatched away from them by other financial intermediaries, such as, mutual funds and capital and money markets. Banks in India too have been affected by the gale of reforms and sweeping across banks around the world. The impact has, so far, been moderate in India. Banks here have coped well with the reforms and they have a lot of opportunities along with challenges, if they are willing to actively tap the huge potential in the country and improve the economic well-being of the nation. The main areas that banks in India have to concentrate on are resource mobilization, deployment of funds and improvement in the quality of services rendered. An overview of the problems and prospects of Indian banks in the next few years is attempted in this article.
Regarding resource mobilization, Rakesh Mohan, the then deputy governor of RBI stated that, "Household financial savings are the main source of funds in the Indian financial system". And banks have had an impressive record in mobilizing the savings of the community over the last two decades. Net bank deposits of the household sector grew from 22.8% in the 1980s to 27% in the 1990s; in the latter half of the last decade (1997-98 to 2001-02) the growth was at an impressive rate of 31.4%. While the per capita deposits have increased from Rs. 2,098 in March 1990 to Rs. 8,542 in March 2000 and on to Rs. 11,088 in March 2002, there still is an opportunity to tap much larger deposits, for two reasons. |
