Banking Scenario

Every coin has 2 sides, can be proved from today’s banking scenario in India. Recently banking sector has undergone numerous changes in terms of management, ideas, activities, communication and yet more. The changes that were born recently carried banking sector a step ahead simultaneously hit its back.

Competition plays a major role in any business today, banking is not an exception.  Banks has entered into a war of rate cuts. HDFC a leading bank in India has initiated to reduce the home loan rate to 9.9% in general and 9.85% for women borrowers, this rate cut is applicable even for existing borrowers. Followed by HDFC, SBI has also adopted the same rates but it has initiated only for new borrowers. ICICI, Axis bank and other non-banking financial institutions like Muthoot fincorp has also planned to enter the war.

Interest rates has been reduced from 10.25 – 10.50% that existing couple of months back. The scenario of interest rates is really encouraging to obtain loans from banks. This rate reduction would attract many new customers for borrowing. The credit rate would increase. A favorable situation is created for public as well as for banks. This scenario contributes to one side as well as the positive side of the coin.

Banks attract new customers with huge efforts this year to support Modi’s investments target and Make in India campaign. As a result, unachievable targets are being set for branch managers. Results in accepting customer’s request for loan without proper verification, over valuation of securities and improper credential check to reach targets. It has been proved through Deloitte’s research that frauds have been increased by more than 10% in Indian banking sector. This research was undertaken with 44 banks.

Each bank has experienced more than 50 frauds in retail sector averaging to a loss of Rs.10lac per fraud and around 10 defaults in non- retail sector averaging to a loss of Rs.2 crore per default. Banking sector has the privilege to be mentioned as the pioneer to adopt technology in working environment. But, why technology can’t be used today to identify and analyze these defaulters in advance. Analytics has been growing unimaginable in other sectors today, which can be extremely useful for banks to reduce defaulters and improve asset quality.  Banks take 6 to 24 months to detect a fraud.

India has been pointed out by World Bank for having high dormant accounts. To mention in quantity India holds 43% of its accounts as dormant accounts. It is unbelievable to accept a fact that only 39% of Indians hold prepaid instruments such as debit, credit cards etc., GOI finds ways to create more accounts among rural India, but end of the day most of the accounts stay dormant. Banks has to put in expenses to maintain these inactive accounts as well. Frauds and dormant accounts contribute to the other side (i.e) negative side of Indian banking sector.

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