Retail banking is gaining focus in India due to changing landscape of competition, regulatory environment, innovative technology etc. While NPAs in this sector are under control, rising interest rates could prove hazardous. Rising number of middle income families in India and GDP growth rate will boost the retail lending in the near future. To achieve the targets, banks should stress on expansion and diversification of retail products with thrust on micro planning and effective strategy formulation and execution etc.
Financial sector reforms in India, of which banking sector reforms constituted an integral part, stressed liberalization of markets, privatization of ownership and globalization of the economy. These reforms led to a heightened consciousness of ownership and capital structure, enhanced competition, increased autonomy, technological upgradation and performance change reflected in broad indicators of net worth, Net NPA/Net Advances Ratio, Return on Assets (RoA) and Capital to Risk Weighted Asset Ratio (CRAR). Banking success, particularly in recent years, has been rooted in buoyancy in treasury incomes and retail expansion.
International criteria for efficient banking stipulate Capital Adequacy Ratio (CAR) above 9%, minimum 1% return on assets, less than 3% net NPA, low short-term borrowings, efficient payment systems, prudential regulations, minimum exposure to sensitive sectors, disclosure norms, international accounting standards, consolidated accounts and supervision, deposit insurance cover, Non-Interest Income (NII) to cover staff expenses, efficient use of funds and corporate governance. Against the overarching context of the increased vulnerability of the financial system and the consequent need for improving efficiency and stability, major Indian banking concerns include its relatively high cost (intermediation or transaction cost), check on operating cost through higher labor productivity, technology, innovation and business process reengineering (BPR), further reduction in NPAs, greater internal control system and sound business practices, prudential norm and supervision, streamlined risk management system and diversified loan portfolio.
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