Annual General meeting of the Indian Banks' Association

On

26th May, 2006

Hon'ble Chief Guest Shri P Chidambaram, my colleagues on the dias, Shri V P Shetty, Shri S C Gupta, Shri Ananthakrishna, Shri H N Sinor, Fellow Bankers, Ladies and Gentlemen,

A very warm and hearty welcome to this special annual function of the Indian Banks Association. It is special since IBA is celebrating its Diamond Jubilee this year. We are honored to have the Finance Minister, Hon'ble Shri Chidambaram in our midst today to grace this auspicious occasion. Shri Chidambaram has graced this event consecutively in the last two years and it is indeed a kind gesture on his part to consent to be the Chief Guest on this special occasion.

IBA was formally established on 26th Sept 1946 with 22 member banks. Of the 22 founder members, Bank of Baroda, Bank Of India, Bank Of Maharashtra, Canara Bank, Central Bank of India, Dena Bank, Indian Bank, Punjab National Bank and UCO Bank continue to be members. Today IBA has 149 members comprising of Public sector Banks, Private sector banks, UCBs and a host of other financial service providers.

These last six decades has seen the transformation of the IBA from an association of bankers to discuss issues of common interest, into the VOICE of the Indian Banking Industry. IBA has played an important and pivotal role in the evolution of the banking sector to its present status.

IBA has been redefining its role in the evolution of the banking industry, since 1991, the year of financial sector reforms, liberalization and globalization. The expansion of economic activity and disintermediation has led to the industries accessing credit not only from the traditional Banks, but also from other financial intermediaries. This has led to tremendous competition between the Banks and other institutions. In the field of commercial lending, various structured products have been evolved for the different categories of borrowers. Similarly banks have to adapt to new technology, better risk management and enhanced customer service to ensure that they retain their competitive edge. The primary objective of IBA was to enable a smooth transition of the age old Banks into the new mould, through continuous coordination between all the players, including the regulators, to ensure orderly growth in the banking sector.

In 2005-06, the economy has done very well. We have achieved a growth of 8.1 percent, coming after a growth rate of 7.5 percent and 8.5 percent in the previous two years. This growth has been propelled by a robust industrial sector, with the growth rate being in the region of 8 percent. The Business Confidence Index is also high with the industries appraising better conditions for growth in the next 6 months. India is now perceived as a significant emerging market for players the world over.

The capital markets have been on the upsurge with the Sensex scaling the 10000 mark aided by substantial FII inflows. While there have been setbacks to the capital market, fuelled by the melt down in metal prices, fall in global markets and hardening interest rates, the fundamentals of the economy continue to remain strong. The rising oil prices though continue to remain an area of concern.

In this scenario, the Banking sector has achieved spectacular growth. The Bank deposits have grown by 24.05% as against 12.8% last year, while bank credit has surged up by 37.04% on a growth rate of 27% last year. Evidently, the banking channels have played a major role in ensuring adequate credit supply, particularly to the growth sector.

The turning point for the banking sector in this year has been the achievement of a credit deposit ratio of 71.68 % after a long gap. This is very reassuring as it indicates that along with the growth in the economy, the banks are finally playing the role that they are meant to play. Earlier, the declining interest rates, the Bull Run in the debt market, the lower growth in the overall investment in the country, the banks tended to utilize their funds in government papers as against conventional credit.

The Banking sector is today faced with the challenge of catering to a changing and demanding demographic profile, heightened customer expectations and technological advancements. Banking is all set to become a value added IT service.

Today banks have to rise to the challenge of globalization and tap the opportunities in the financial markets and here I would like to focus on the future trends in Banking. The banks today are facing intense competition and to maintain their market share, banks have to become more customers centric. They have to offer all financial services to the customer at a one-stop point. Banks are poised to become large sized malls offering the entire gamut of financial services , be it banking, or credit cards, mutual funds or insurance. In short, the need of the hour is to be a provider of total financial solutions.

Further, with changing demographics, the challenge is to capture the new generation as customers, those who are high on technology and short on time. These customers are required to be serviced beyond the traditional brick and mortar branches. They require access to multiple delivery channels as ATMs, Internet banking, Telebanking and ebanking. They require access to their accounts and the flexibility to operate their accounts from anywhere in the country. It is only through adopting state of the art technology that Banks can deliver such flexible distribution channels.

Faced with global competition, the banks have to shore up the efficiency of their operations, which will be possible through the use of high-end technology and process reengineering to increase the speed and efficiency and reduce transaction costs.

An inevitable trend of the future is consolidation through mergers and acquisitions. If Indian banks are to compete globally, they have to not only attain the critical mass and optimum size, but also they have to generate revenue synergies and fund their capital requirement.

In the light of these emerging growth paradigms , Risk management will be a focus areas for banks. With Basel II to be implemented in the next fiscal, the Banks are required to put in place systems and procedures for risk measurement and risk management. Sound risk management policies will ensure that the Banks stay ahead in the competition.

The IBA is committed to make this transition process smoother for the Banks by striking a balance between the different entities in the banking sector and the regulators to make the financial system strong and vibrant.

During the year IBA has coordinated various conferences, chief among them being 'Conference on Global Banking Paradigm Shift' at Mumbai in October 2005 and 'Bancon 2005', held at Kolkata in November 2005. The ' Conference on Global Banking Paradigm Shift' was attended by 450 participants, including leading national and international finance experts. The conference focused on the several issues of strategic importance to the Banking sector, chief among them being implementation of Basel II, structuring of a comprehensive and dynamic risk management framework, Credit quality and NPA management, Agribusiness, SME sector, Banking technology and consolidation in the banking sector, besides a host of other relevant issues.

BANCON 2005 an important annual event for the Banking sector, focused on the theme of 'Indian Banking - Opportunities at the Bottom of the Pyramid' focusing on Agro business - global perspectives in Agro finance, effective credit delivery in Agro business and risk mitigation in Agro business, the SME sector and Financial Inclusion Opportunities. These conferences brought together expert panelists and speakers from diverse banking institutions for their views and these discussions enabled the participants to strategise and prepare themselves to meet the challenges of the future.

On my personal behalf and on behalf of the IBA, I wish to record our deep appreciation and gratitude to the Hon'ble Finance Minister, Shri P Chidambaram for giving his valuable time and his keen interest in the activities of IBA. During the last two years, the Finance Minister has conducted frequent interactions with the bankers to discuss various issues ranging from operations to policies and governance, thus giving direction to the objectives of banking policy and practice. Shri Chidambaram was gracious enough to inaugurate Bancon 2005 at Kolkata. The banking fraternity is indeed grateful to the Finance Minister for bestowing his personal attention to make the banking sector more vibrant.

Our special appreciation to Dr Reddy, Governor of Reserve Bank of India, who has always given his valuable suggestions and guidance in setting the agenda for growth in the banking sector in the background of emerging standards in regulation and prudential norms.

An association draws its core strength from its members and the Association is grateful to the members for their valuable support and cooperation, particularly in deputing their senior executives as members in the various working groups constituted by IBA.

I am also grateful to all the members of the Managing Committee , who, have given valuable time and suggestions in shaping the policy of the association, despite their very busy schedule.

I also take this opportunity to inform this august gathering that I shall be laying down office shortly. My career spanning over three decades in the banking industry has been full of challenges and creativity.

My tenure as the Chairman of IBA has been fruitful and rewarding. My personal thanks to each and every stakeholder of the association, who have made my tenure a memorable one. I am grateful to Shri Sinor and his team members who have given their unstinted support and able cooperation in all my endeavors.

I foresee that IBA will continue to play a pro-active role in the emerging markets scenario and in particular the development of the Banking industry, which is faced with a challenging global scenario.

I wish IBA, Good speed in its activities and a very bright future ahead.

Thank you