FICCI SURVEY ON THE STATUS OF THE INDIAN BANKING INDUSTRY-

Progress and Agenda ahead

Executive Summary

Today the Indian banking system is among the best in the world and the years to come
may see them taking on the global behemoths. FICCI conducted a survey to analyze
the present state of the Indian banking industry and challenges facing the industry.

INDIAN BANKING INDUSTRY – At a Glance

¾ 84 percent of the survey respondents described the performance of the banking

industry as “Very Good” in the fiscal 2004-05.
¾ Newly granted autonomy would certainly make the PSBs more competitive and
profitable, said 88 per cent respondents, though some more changes considered
desirable (refer survey)
¾ 48 percent of overall respondents and 67 percent of private bank respondents
expressed the need to relax the prescribed limit of single ownership and cross holding
cap in the Ownership and Governance guidelines for Private sector Banks.
¾ Although 72 percent of public & private sector bank respondents expressed their
satisfaction with the recently devised road map for the foreign banks, majority of
foreign Bank respondents (75 percent) expressed complete dissatisfaction with this
roadmap.
¾ 75 percent of the foreign bank respondents expressed that time frame prescribed to
expand through Merger & Acquisitions should have been less and equal number
voiced that the guidelines are not in line with international norms.
¾ Consolidation in the banking industry followed by Technological upgradation was
considered as key factors currently required to enhance the international
competitiveness of the Indian banks.
¾ Free trade agreements (FTA) considered a positive step in the area of banking by
almost all respondents. The available market size and the level of access provided to

Survey on Status of Indian banking Industry – Progress & Agenda ahead 1

 Indian banks in foreign countries should be the key factors in consideration, while
entering into such agreements, as highlighted by 76 percent of banks
¾ Rise in the interest rates imminent say 64 percent survey respondents. Majority
expects increase by 0.5 percent.
¾ 88 percent of Public and private sector banks considered HRD related issues as one of
the biggest challenge in the process of consolidation.
¾ 83 percent respondent banks claim to have more than 85% level of technological
advancements in their banks with remaining banks stating it to be around 65-85%.
¾ All our respondents emphasized that customer retention is significantly important for
the profitability of the banks.
¾ More than 70 percent of banks felt the need of advanced security software’s and
stricter security policies to safeguard and ensure the security of customer information.
Some of the legal changes suggested are detailed in the survey.
¾ 53 percent of respondent banks considered 6 months transition period to shift from
MIFOR rupee benchmarks for interest rate derivatives to be inadequate
¾ Majority of banks felt that their Risk management framework for implementation of
BASEL II was well in place.
¾ 53 percent of our survey respondents intend to increase their retail portfolio by more
than 25% in the year 2005-06.
¾ Rising Indebtedness followed by lack of Technological advancements were identified
as biggest challenges that could affect the future growth of Retail banking.
¾ 80 percent of survey respondents did not agree with the notion that housing loan is
creating a bubble.
¾ Substantial progress made by banks in cleaning up the NPAs from their balance
sheets, was largely attributed to SARFAESI Act and increased provisioning on
Doubtful debts by majority of survey respondents.
¾ Absence of Secondary Market for the trading of security receipt issued by ARCs was
identified as one of major problem in Indian Model of NPA management.
¾ Separate NPA norms for the farm and the SME sector were recommended by large
number of respondents.

Survey on Status of Indian banking Industry – Progress & Agenda ahead 2

¾ 96 percent of all banks claim that the current growth of non-food credit is sustainable
for about 3-5 years.
¾ Detailed information on banks sectoral exposure of credit reveals that over two-thirds
of the credit flow has been on account of retail, housing and other priority sector
loans. Banks credit flow exposure to large Enterprises continues to remain buoyant
with recent indications that credit to agriculture and Micro credit has also picked up.
¾ 71 percent of our survey respondents did not consider SMEs as an avenue of forced
lending.
¾ 95 percent of banks intend to increase their exposure further in the area of Micro
Credit financing.

Survey on Status of Indian banking Industry – Progress & Agenda ahead 3