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Transformation Of Banks Essay

4203 words - 17 pages


Transformation is taking in Indian banks from all verticals, and subtle and not – so – subtle makeovers in banking products are dynamically altering the face of banking. The research paper focuses on the way transformation is affecting the banking sector and the way use of IT products have changed the face of banking in India. It reveals current environment of the banking industry; the factors that have brought changes in the industry; and the way these changes have contributed to the development of banking. This paper concludes that financial market has turned into a buyer’s market. Banks are have now bloomed into one-stop Supermarkets. Their focus is ...view middle of the document...

It then goes on to identify some important forces for change and some important forces resisting change. Attention is paid finally to growth path of banking sector with technological advancement. It is depicted that banking is going to be intensely competitive and complex. The best idea would be for the domestic banks to enhance mutual co-operation in order to create a healthier market order and raise the overall competitiveness of the industry as a whole. Incorporation of advanced technology and utilization of modern management techniques are other crucial aspects at which domestic banks should pay keen interest.

Indian Banking Transformation – The Starting Point
Since independence Indian banks have undergone through four major shifts which can categorized as pre reform (before 1991) and post reform period (after 1991):

Pre-Reform period:

A period of consolidation of banks up to 1966
A period of historic expansion in both geographical and functional terms from1966 to mid- 1980s
A period of consolidation of branches from mid - 1980s to 1991

These changes were policy induced but not driven by market forces.

Post- Reform period

Entry of technology in the Indian banking sector can be traced back to the Rangarajan Committee report, way back in the 1980s but during nineties, the banking sector witnessed various liberalization measures. New private sector and foreign banks emerged - equipped with the latest technology. These banks opted for a different model of having a single centralized database through a network infrastructure, instead of having multiple databases for all their branches. These changes were market driven, having the influence especially of globalization. The crux is Indian banks have no control over developments abroad but are subjected to their effects. Hence these changes were not the outcome of internal changes but of external changes. Deregulation has opened up new opportunities for banks to increase revenues by diversifying into investment banking, insurance, credit cards, mortgage financing, depository services, securitization, etc. Now all the banks have started with the concept of multi- channels, like ATMs, credit cards, debit cards, telephone/mobile banking, internet banking, call centers, etc. The role of banking is redefined from a mere financial intermediary to service provider of various financial services under one roof acting like a financial supermarket.

Forces for change in Indian Banking:

Underlying forces for change Developments in communication systems, coupled with blurring of differences between banks and non - banks and globalization have aggravated the competitive environment.

Technology became a key differentiator for the new private sector banks. The technological superiority helped these private sector banks to have upper edge over public...

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