Issues in Banking Institutions in India Banks in any economy has a greater role to play.

They are purveyor of c redit & monetary liquidity which fuels the growth engines of a nations. Banks pl ay dual purpose role, one as an institution to create the returns over their cap ital invested by investors & owners as well trustee of society to maintain a sou nd monetary system which ensure financial stability in breath & length of nation al economy and its interest. This face of between the profitability & need of li quidity keep them on toes. Specially in the time of turmoil their role become ve ry subtle. India may boast of having a Banking system efficient enough to sustai n any global financial crisis, like experienced in past few years under the very & perfect supervision of its regulator RBI but it still has miles to go. Especially, when again a global financial meltdown just in time span of around four years, lurking on the doors of European & western economies, domesti c markets are slowing down which coupled with the persistent high inflation lead ing a situation called Stagflation and rising interest rates Indian banking instit ution will be definitely having the nightmares now a days. Being a nation with around 18% of world population with wider geographi cal, economic social distances Indian banking industry deserve to have a multiti er Banking system catering the need of different segments. broadly the banking s tructure in India can be halved among : Commercial Banks Co-operative Banks Regional Rural banks The commercial banking structure in India consists of: Scheduled Commerc ial Bank & non scheduled commercial Banks. Commercial banks again based on their ownership can also be classified as PSU Banks mostly nationalized, Private sect or banks & foreign banks. co-operative banks are scheduled commercial banks or m ay be non scheduled but registered under special provision of co-operative acts. Because of their diversity in nature of purpose , Base of customers, geo graphic dispersions, need of these banks tends to be different from each other. Post reforms era of 1991 to date has seen many policy changes for banking Insti tutions, but still reality remain grim for banking Institutions. Around 50% of I ndian population still deprived of basic banking facility. In other words, half of Indian population is waiting for Financial Inclusion specially in rural bases . Indian Banks needs to speed up their efforts & should show serious anxie ty to cover the uncovered, but still banking institutions have their own growing issues to be resolved without addressing remedial to these issues & problem fac ed by our Banking institutions 100% financial inclusion in our nations will rema in a unfulfilled dream. These issues are different from bank to bank but few com mon & basic issues needs serious surgical hits. According to the experts & many studies on banking presented over Banki ng reforms in present years few common issues & problems in all types of Banks a re being given presented. NPA /NPL : MANAGEMENT OF SINKING ASSETS: This is a key to the stability and continued viability of the banking s ector. Although the ratioof nonperforming loans to total assets are higher in co mparison to internationalstandards, the Indian banks have done a splendid job in shading off nonperforming loans (NPL) in recent times. Non-performing loans to total loans of banks were 1.2 per cent in the US, 1.4 per cent in Canada and in the range of 25 per cent in major European economies. In contrast, the same for Indian banks was 7.2 per cent in 2004-05. Though Gross NPL ratio for Indian scheduled commerc ial banks declining year on year but it still remain higher and level of danger for many banks eating their profitability as well liquidity or solvency.

Banks have made substantial progress in cleaning off NPAs from their balance sheet adducing to various institutional measures pertaining to one-time settlement, debt recovery, asset reconstruction and securitization, Lok Adalats and corporate debt restructuring, but still serious and further efforts required in this regard NPA of banking institutions gradually in last several years have come down from aroung 15% to average of 3.5 %. Although many cooperative & commercial banks sti ll facing the problem & sitting on the time bomb. HIGH OPERATING COSTS DUE TO INEFFICIENCY & LACK OF ACCESSEBILITY OF BANKING TECH NOLOGY: The second issue of import is that of management of costs. Cost containm ent is a key to sustainability of bank profits as well as their long-term Viability. Operating costs of banks, expressed as per cent of total Average asset, was lower than 2 per cent in major European economies like Sweden, Austria, Germany and France. In contrast, operating costs of commercial banks in India were always above 2 % and in many cases as per few sur veys around 03% of assets which are eating a good share of profitability and bec ome a danger in cases of many banks which finds it difficult to manage and cann ot resort to interest rate hikes to cover the lost margin. Leading many banks specially PSU to outsourcing of non core banking acti vity from other private sector & cost effective players leading to strikes & con flicts of interest between public sector & private sector banking institutions , recent strikes by the employees of PSU banks for 02 days in august 2012 is due t o same reason and anxiety. POOR RISK MANAGEMENT PRACTICES : Many cooperatives banks are still not aware of the word in their operation. Though the Basel II put a lot of stress over the i ssue of ALM many banks specially smaller find it difficult to place proper and h ighly skilled department which can strategically be able to handle the operation al risk associated with their practices of lending (Assets) depositing ( Liabili ties). Ignorance have costs many small commercial & cooperative Banks lost their identity in past few years and many are still under the threat. HUMAN RESOURCE ISSUE: The banking industry has transformed rapidly in the last ten years, shif ting from transactional and customer service-oriented to an increasingly aggress ive environment, where competition for revenue is on top priority. Long-time ban king employees are becoming a major issue as banks through all segments looking towards performance based incentive system & Hire & Fire policies leading to con flicts. The diminishing employee morale results in unethical acts which results losing business & customers or decreased revenue. Another HR issues is that, re tail banking industry is concerned more about efficient & skilled employee reten tion from all levels: from tellers to executives to customer service representat ives because competition is always moving in to hire them away. The competition to retain key employees is intense among Private commercial bank s specially becoming a major issue. BANKING TECHNOLOGY DISPARITY: It is also a big issue & factor of differentiation now a days between la rge commercial banks & small commercial or co-operative banks. Gap of technology is widening due to larger institutions are shifting towards high tech core bank ing solutions to provide better services to their customers which is toll over t he customer base of small banks. Another issue related to technology is high cost of capital & its recove

ry which become difficult without integration of banking operations of many sma ll banks which is again a burning issue in industry. Few other Issuing plaguing the banking institutes are : Dynamic Expectations of customers leading to universal banking which is difficul t for small commercial & cooperative banks: Stiff competitions among all the players leading to change in banking structures . Issue related to the corporate governance policies in banks & operational transp arency. Implementation of BASEL II norms in coming future especially from the small comm ercial banks. More flexible interest rate regime leading to volatility. Consistent review of Bank rates, CRR, SLR & OMO by regulator (RBI) creating unce rtainty. Banking in rural areas & bases where infrastructural capital costs & operating m argins are lower. Conclusion: