The report was unveiled during the Banking Conclave 2013 of CII on Friday here.
With the Indian banking sector at an inflexion point, the CII-KPMG Report notes that the banking sector must live up to the challenges, particularly in view of the government's ambitious financial inclusion plans and its decision to spend substantially on infrastructure building.
Sudhir Deoras, Chairman, CII Eastern Region, said, "The volatile economic scenario has forced banks to try various business models either to increase their bottom line or manage risks better. In this context, the CII-KPMG would help the industry understand the emerging strategies needed to maneuver through these times of turbulence and high risk."
The CII-KPMG Report said it attempts to capture the current scenario and recommends strategies for compliance and governance, operating efficiencies, managing market risks, financial inclusion, and technology in banking.
The increased commoditisation of service offerings from banks places incessant demand on them to adopt variable cost structures, increase revenue, improve products and services, expand market share and also achieve nonlinear revenue growth, it says.
The report suggests banks strengthening their Risk Management Strategies while reviewing the trading book positions and take prompt, appropriate actions to save the interest of the institution.
To aid the process, strong technology platform along with appropriate analytics are essential pre-requites, it adds.
It is imperative for individuals to gain easier access to basic banking facilities such as savings account, affordable credit and remittance services as well as investment and insurance products, and to deem them financially included, the CII-KPMG Report says.
"The Banking sector has an important role to play in stimulating economic growth and can really help in deploying the national savings towards infrastructure development. This will in turn stimulate economic activity on one hand, and help sustain a high growth rate on the other," said Deoras.
"A meaningful FI (financial inclusion) can be achieved only through collaborative efforts of all stakeholders involved. Policymakers could help provide a facilitating policy framework, infrastructure support and favourable environment whereas service providers should experiment with different models to serve the unbanked," said Ambarish Dasgupta, Head - Management Consulting, KPMG.
The CII-KPMG Report also scans how an unstable economy can lead to deteriorating asset quality thereby causing stress to the banking sector.
The RBI estimates that the gross NPA ratio of banks may rise to 4.4 percent by March 2014 as compared to 3.42 percent in FY 13.
In order to meet these challenges, industry players are harnessing technology to create innovative and cost-efficient operating models and sustain profitability and viability.
Apart from the increase in default risk faced by banks and financial institutions at large, the growing presence in trading book of corporate bonds and structured products, which are generally less liquid, has further resulted in an escalation of certain types of risk. The latter that include liquidity risk, concentration risk and correlation risk, are not fully addressed under the current regulations on market risk, the CII-KPMG Report says.
To overcome some of these challenges one of the solutions the leading banks have been considering is to develop tools for calculating economic capital, which would integrate credit and market risks and its different components, it adds.
Shashwat Sharma, Partner KPMG in India said, "From tapping new segments in the SME sector to funding cross-country aspirations as Indian corporates go global, Indian banks are pursuing multiple strategies for growth in an uncertain environment."
--IBNS (Posted on 14-09-2013)