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COVER
STORY
Taiwan
Overcrowded Banking Sector -- Katuri Nageswara rao
Taiwan,
with a population of 2.2 crore has been overbanked, with 47
domestic banks, 5 medium-sized banks and 36 foreign banks.
It needs to reduce these numbers so as to become efficient
and competitive. Non-performing assets pose a formidable challenge,
especially when loans under surveillance also are added to
the NPAs. While aggressive write-off is encouraged, asset
management companies buy part of the bad loans. However, there
is no recapitalization provision from the government.
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BANKING
SCENARIO
ATM
Advertising Can Indian Banks Leverage? -- Kanugovi Sreenath
Advertisers
try to reach the customer at the right place, right time and
with the right message, only to capture his attention. If
they fail, nothing can be achieved; they can neither alter
his behavior nor persuade him to buy products. Can banks leverage
on this medium over and above attracting customer attention?
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PSBs
and Growing Competition -- Vinod Sharma
In
the recent years, public sector banks (PSBs) have been experiencing
a growth in profits. But many drivers of profits are not sustainable
in the long run. They should focus on key factors like diversified
loan portfolio, higher share of non-fund income in total income
etc., which help in sustainable profits in the long run.
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BANKING
PRODUCT
Time
to Play a Forex Game -- Sugata Ghosh
Government's
decision to allow the resident individuals to remit $25,000
a year may open up new vistas of investments like foreign
currency deposits. But the individual investor must remember
that no hedge instrument is available for his exposure. Also,
banks getting into the game may find that without value-added
services, it will be difficult for them to attract customers.
The options available for banks is to use such deposits as
foreign currency loans to corporates, global equities, investment
in real estates abroad etc.
Ó The Economic Times, February 11, 2004. Originally published
as "$25,000 Free Remittance Scheme: Time to Play a Forex Game."
Reprinted with permission.
REGULATORY
ENVIRONMENT
Banking
Regulator vs. Statutory Auditor -- Srinivas Yanamandra
Due
to the fast growth of the banking sector, both statutory auditors
and banking regulators are facing the same challenges. If
they want to derive benefit from each other's work, they should
develop a bond of mutual trust and that collaboration should
enable each to benefit from the other's work.
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Relationship
of Central Banks with the Government -- Kapil Sharma
The
degree of autonomy for a central bank is a matter of eternal
debate. Normally, monetary issues are decided by the central
bank while fiscal policies are the concern of the government.
However, the inter-connectivity between monetary and fiscal
policies leads to a situation where the central bank has to
be in dialogue with the government before formulating policies.
The extent of borrowing by the government is one area where
central banks don't seem to have any say.
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RISK
MANAGEMENT
Interest
Rate Risk Hedging Instruments for Banks -- Yash Paul Pahuja
Higher
percentage of investment in government securities (g-sec)
by Indian banks, which stood at more than 40% of aggregate
deposits compared with developed countries like US (4.6%),
UK (0.3%) and Euro zone(6.9%) has helped the banks to earn
higher trading profits in the recent falling interest rates
scenario. It has also increased the interest rate risk for
banks. Using some innovative interest rate risk hedging instruments
like interest rate swaps, interest rate futures and sale of
longer maturity bonds, banks can reduce their exposure to
interest rate risk.
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CREDIT
MANAGEMENT
The
credit growth conundrum -- Abheek Barua
More
than a year has passed since industrial recovery, but still
the non-food credit growth has not picked up commensurately.
Banks provide credit to industries in two forms -working capital
and term loans. Cheaper source of funds like commercial paper,
external commercial borrowing (CP) and MIBOR linked papers,
besides higher prime lending rate (PLR) of banks are the major
reasons for lower growth of bank credit for working capital.
Rising index for industrial production shows that credit demand
for capital investment may increase but higher margins and
higher liquidity of companies will decrease the demand. There
is a need for banks to find alternative avenues for credit
growth like the retail sector and service sector.
Ó Business Standard, February 9, 2004. Reprinted with permission.
INVESTMENT
BANKING
Changing
Face of Financial Sector -- Aloka Majumdar
Merger
of Citibank and Traveller has created a debate in the financial
sector throughout the world, as to whether the standalone
or integrated model is better. After the merger, Citigroup
climbs to second point but Goldman Sachs is still ruling the
investment banking space at number one as a standalone entity.
Investment banking is a specialized area but an investment
banker (IB) can offer a wide range of services at cheaper
cost to its corporate client if he is in an integrated model.
Both models have their own pros and cons. As the disinvestment
debate hots up in India, the smartest players will have the
greater edge rather than a gamut of service providers at cheaper
cost.
Ó Business India, January 19 - February 1, 2004. Originally
published as "The Great Investment Banking Debate". Reprinted
with permission.
BANK
MARKETING
"Unfixed
Deposits" and Other Marketing Thoughts -- Pushkin Bhattacharya
Unfixed
Deposits, introduced by Citibank in the latter half of the
last decade became an instant hit with the bank's customers.
Unfixed Deposit is basically a fixed deposit with the provison
that the customer has the liberty of withdrawing the amount
deposited in part or in full, in times of exigency. In a banker's
parlance, the formal product was made up of two components-fixed
deposit and overdraft. This feature is perhaps as old as commercial
banking itself. But the fact remains that this unfixed deposit
has caught the imagination of the customer only now.
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