1. Banking Risks and Regulation

2. Changes in Indian Banking

3. Possibilities of Coping with Challenges Investing in state of the art technology to ensure reliable service delivery Leveraging the branch network and sales structure to mobilize low cost current and savings deposits Making aggressive forays in the retail advances segment of home and personal loans

4. Possibilities of Coping with Challenges Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and the cost per transaction Focusing on fee based income to compensate for low spread (trade services) Innovating products to attract customers Improving the asset quality as per Basel II norms

5. Possibilities of Coping with Challenges

6. Bank Nationalization After the independence the major historical event in banking sector was the nationalization of 14 major banks on 19 th July 1969. The nationalization was deemed as a major step in achieving the socialistic pattern of society. In 1980 six more banks were nationalized taking the total nationalized banks to twenty.

7. Products and Services of Banks Value added services to customers Emergence of strong investment and merchant banking entities Product innovation and creating brand equity for specialized products New products on the liabilities side such as –Foreign exchange linked deposits –Investment linked deposits

8. Products and Services of Banks Investors with varied risk profiles demand better yields Consolidation of services between banks, corporate clients and their retail outlets Sharing of common platform to increase revenue through increased volumes

9. New Banking Products Risk managers to corporate and other entities Risk management of products –Options –Swaps –Other aspects of financial management in a multi currency scenario Development of derivative products

10. New Banking Products Offer of hedge products to the corporate sector and other investors –Commodity derivatives Sophistication in trading and specialized exchanges for commodities Financial support to exchanges Better settlement systems Wider participation

11. Bancassurance Entry of banks / financial institutions in insurance business. Offer of insurance products through network of bank branches. Expansion of business through self-designed insurance products after necessary legislative changes. Increased fee-based income of the banks.

12. Banking Risk Rising global competition Increasing deregulation Introduction of innovative products Changing delivery channels of banks Perfect market economy introduces market related risks –Exchange risks –Interest rate risks –Operational risks

13. Banking Risk Growth of derivatives and off-balance sheet operations Diversification of banking operations Expansion in e-banking Continuous vigilance Revisions of regulations

14. Managing Banking Risk Centralized risk management functions Risk management functions (independent from business profit centers) Integration of risk management functions into the business process Assessment of risk-return for new business opportunities Incorporation of risk management in the design of new products

15. Managing Banking Risk Combined assessment of credit, market and operations Reporting and managing on risks on an integrated basis Risk Adjusted Returns on Capital (RAROC) based performance measures RAROC will be used to drive pricing, performance measurement, portfolio management and capital management

16. Managing Banking Risk Corporate office to branches or operating units Audit and supervision shifts to a risk based approach rather than transaction orientation Increased risk awareness levels of line functionaries Technology related risks focusing more on vigilance of operating staff

17. Managing Banking Risk Reputation risk –Maintain a high degree of public confidence for raising capital and other resources Risks to reputation could arise on account of –Operational lapses –Opaqueness in operations –Shortcomings in services Management of reputation risk –Systems –Internal controls

18. Managing Banking Risk Advances in risk management and risk measurement Transformation in capital and balance sheet management Dynamic economic capital management –Create –Sustain –Maximize shareholders’ wealth Total risk enabled enterprise Concerns of various stakeholders’ expectations

19. Managing Banking Risk Cooperation and sharing of experience among banks Common facilities for development of risk measurement and mitigation tools Common facilities for training of staff at various levels Establishment of risk management systems Implementation of prudential norms of accounting and asset classification Quality of assets Provisioning for impaired loans Significant decline in non performing asset levels

20. Role of Regulator Ensuring soundness of the system by fixing benchmark standards for capital adequacy and prudential norms for key performance parameters. Adoption of best practices especially in areas like risk management, provisioning, disclosures, credit delivery, etc. Adoption of good corporate governance practices. Creation of an institutional framework to protect the interest of depositors. Regulating the entry and exit of banks including cross-border institutions.

21. Role of Indian Banks’ Association Self regulatory body Development of benchmarks on –Risk management –Corporate governance –Disclosures –Accounting practices –Valuation of assets –Customer contract –Lenders’ liability

22. Role of Indian Banks’ Association Role of the Indian Bankers’ Association –Lobbyist for getting necessary legislative enactments –Changes in regulatory guidelines