Challenges in Indian banking

 

 

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Challenges in Indian banking

via Prep4Civils by Bharath Vaishnov on 11/25/11

Analysis  of the challenges Indian banking sector faces in current scenario

India's banking sector:Opportunities and Challenges

• Opportunities
  1. Adequate reserves of capital and liquidity
  2. Improved their asset quality
  3. Immense opportunities to expand with innovative products
     1. The recent deregulation of savings rate will help in furthering innovation
     2. Challenges
     3. Maintain capital adequacy in accordance with Basel III norms
     4. The unregulated and less regulated NBFCs and mutual funds
     5. High interlinkage between banks, Hence any problem in a single bank soon spreads to entire banking sector
     6. Rise in NPAs
     7. Rising interest rates
     8. uncertainty in global economy
  4. Way ahead
     1. Attract more public savings and channel it into investment. Currently most of income is held up at household level
  5. Formulate innovative products and make them accessible and affordable to larger sections of people

Extra information

BASEL III norms

1. It increases min common equity(Tier 1 capital) from 2 to 4.5% as it is the highest
2. form of loss absorbing capital
3. Capital conservation buffer has been set at 2.5%
4. Hence the total common equity would be 7%
5. It also requires banks to triple their capital

Possible question

1. Which one is not correct for Tier II capital ?

1. Supplementary capital
2. Less permanent than core  capital
3. This cannot be used for absorbing losses
4. All of the above

2. What do you understand by Tier I capital ?

1. Core capital
2. Permanent capital
3. Basic capital funds subscribed by or accrued and belonging to shareholders
4. All of the above

 

 

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