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ON
RECENT TRENDS IN BANKING AND FINANCIAL SERVICES
Ashima
B.com(hons.)final year
Roll No.5580
Certificate
This is to certify that Anchi of B.com (Hons.)final year of
Vaish Mahila Mahavidyalya, Rohtak has successfully
completed her project report under my supervision. She has
sincerely and honestly completed this report.
This project report has been examined and approved by me.
PRESENT SCENARIO
1. Conservatism to dynamism:
At present, the financial system in India is in a process of rapid
transformation, after the liberalization of financial sector. The main
objective of the financial sector reforms is to promote an efficient,
competitive and diversified financial system in the country. Now the
Indian financial services sector is very dynamic and it is adopting itself to
the changing needs.
2. Emergence of Primary Equity Market:
Primary market in India is now very active. India is now witnessing the
emergence of many private sector financial services. Capital market is
one of the major places to raise finance. The aggregate funds raised in
the Indian capital market have doubled over a decade.
4. Process of Globalization:
Globalization has given way for the entry of innovative and sophisticated
financial products into our country. Government of India is very keen in
removing all the obstacles in the financial sector. Indian capital market
has high potential for the introduction of innovative financial products.
5. Process of liberalization:
Government of India has initiated many steps to reform the financial
services industry. The interest rates have been deregulated. The private
sector has been permitted to participate in banking and mutual fund
sectors. The Finance Act of Government of India is bringing various
amendments every year to keep the financial sector very flexible. A
Indias life insurance sector is the biggest in the world with about 360
million policies, which are expected to increase at a compounded annual
growth rate (CAGR) of 12-15 per cent over the next five years.
The total market size if Indias insurance sector is projected to touch US$
350-400 billion by 2020.india is the fifteenth largest insurance market in
the world in terms of premium volume, and has the potential to grow
exponentially in the coming years. Life insurance penetration in India is
just 3.9per cent of GDP, more than doubled from 2000. A fast growing
economy, rising income levels and improving life expectancy rates are
some of the many favorable factors that are likely to boost growth in the
sector in the coming years. Investment corpus in Indias pension sector is
expected to cross US$ 1 trillion by 2025, following the passage of the
pension fund regulatory and development authority (PFRDA) Act 2013.
6 trends in financial services in 2016
2015 has been the year of security breaches and regulatory fines but also
the year when terms like Shadow IT, Internet of Things as well as
new collaboration & productivity tools made headlines. Here is what is
coming up for the financial firms in 2016.
3. Investment Management:
Several major trends will likely impact the investment management industry
in the coming year. These include shifts in buyer behavior as the Millennial
generation becomes a greater force in the investing marketplace; increased
regulation from the Securities and Exchange Commission (SEC); and the
transformative effect that block chain, robotic process automation, and
other emerging technologies will have on the industry.
4. Insurance:
Nimble will be the new normal in 2017 as insurance companies confront a
marketplace that is changing more drastically than perhaps ever before. In
addition to macroeconomic, social, and regulatory changes likely to impact
the industry, insurers are coping with longer-term, game-changing trends.
The increased connectivity among household and workplace devices, the
development of autonomous vehicles, and the rising threat of cyber attacks
are transforming the way people live and the risks they need to mitigate
with insurance products. Insurers will need to adapt their business models
to address these changes, which can be viewed as both threats and
opportunities for growth.
2. LOAN SYNDICATION:
Loan arranged by a bank called lead manager for a borrower who is usually
a large corporate customer or a government department. Since single bank
cant provide huge sum of loan, a number of banks join together and form a
syndicate. It also enables the members of the syndicate to share the credit
risk associated with a particular loan among them.
3. MUTUAL FUNDS:
This refers to fund raised by a financial service company by pooling
the savings of the public. It is invested in a diversified portfolio with view
to spreading and minimizing risk. The fund provides Investment Avenue
for small investors who cant participate in the equities of big
companies.
It ensures low risk, steady returns, high liquidity and better capital
appreciation in long run.
4. FACTORING:
It refers to managing the process of sales ledger by financial service
company. Its an arrangement under which financial intermediary
assumes credit risk in the collection of book debts for its clients.
A factor provides credit information, collects debts, monitors sales
ledgers, and provides finance against debts.
5. FORFEITING:
Its a technique by which forfeiter (Financing Agency) discounts an
export bill and pay ready cash to the exporter who can concentrate on
the export front without bothering about the collection of export bills.
The exporter is protected against the risk of non-payment of debts by
the importers.
6. SECUTITIZATION:
Its a process by which a financial company converts its ill-liquid, non-
negotiable and high value financial assets into securities of small value
Which are made tradable and transferable. It is best suited for housing
finance companies whose loans are always long-term in nature and
their money is locked up for a considerable period.
In such cases, securitization would help the financial institution to raise
cash against such assets by means of issuing securities of small values
to the public.
7.DERIVATIVE SECURITY:
Its a security whose value depends on the value of other basic
variables backing the security. A derivative security is basically used as
risk management tool and it is restored to cover the risks due to price
fluctuations by the investments manager. It helps to break the risks into
various components such as credit risk, interest rates risk, exchange
rates risk and so on.
In India some forms of derivatives are in operation namely forwards
in market.
a) Forward contract:
In a forward transaction the delivery of foreign currency takes place at
a specified future date for a specified price. Forwards transact only
when purchased and on the settlement date.
b) Options:
Buyer of the option has a right to buy or sell a fixed amount of currency
against another currency at a fixed rate on a future date according to
his option. There is no obligation to buy or sell, but it is completely left
to his option.
c) Futures:
Its a legal contract where there is an agreement to buy or sell a stated
quantity of foreign exchange at a future date at an agreed price to
between the parties on the stated exchange. The future date is called
the delivery date or final settlement date.
d) Swaps:
A swap refers to a transaction wherein a financial intermediary buys
and sells a specified foreign currency simultaneously for different
maturity dates.
9. Financial exports:
A financial export is a financial service provided by a domestic firm
(regardless of ownership) to a foreign firm or individual. While financial
services such as banking, insurance and investment management are
often seen as a domestic service, an increasing proportion of financial
services are now being handled abroad, in other financial centers, for a
variety of reasons. Some smaller financial centers, such
as Bermuda, Luxembourg, and the Cayman Islands, lack sufficient size for
a domestic financial services sector and have developed a role providing
services to non-residents as offshore financial centers. The increasing
competitiveness of financial services has meant that some countries, such
as Japan, which were self-sufficient, have increasingly imported financial
services. The leading financial exporter, in terms of exports less imports, is
the United Kingdom, which had $95 billion of financial exports in 2014. The
UK's position is helped by both unique institutions (such as Lloyd's of
London for insurance, the Baltic Exchange for shipping etc.) And an
environment that attracts foreign firms many international corporations
have global or regional headquarters in the London and are listed on
the London Stock Exchange, and many banks and other financial
institutions operate there or in Edinburgh.
The largest bank, and the oldest still in existence, is the State Bank of
India (S.B.I). It originated as the Bank of Calcutta in June 1806. In 1809, it
was renamed as the Bank of Bengal. This was one of the three banks
funded by a presidency government, the other two were the Bank of
Bombay in 1840 and the Bank of Madras in 1843. The three banks were
merged in 1921 to form the Imperial Bank of India, which upon India's
independence, became the State Bank of India in 1955. For many years
the presidency banks had acted as quasi-central banks, as did their
successors, until the Reserve Bank of India was established in 1935, under
the Reserve Bank of India Act, 1934.
In 1960, the State Banks of India was given control of eight state-
associated banks under the State Bank of India (Subsidiary Banks) Act,
1959. These are now called its associate banks. In 1969 the Indian
government nationalized 14 major private banks; one of the big banks
was Bank of India. In 1980, 6 more private banks were nationalized. These
nationalized banks are the majority of lenders in the Indian economy. They
dominate the banking sector because of their large size and widespread
networks.
The Indian banking sector is broadly classified into scheduled banks and
non-scheduled banks. The scheduled banks are those included under the
2nd Schedule of the Reserve Bank of India Act, 1934. The scheduled
banks are further classified into: nationalized banks; State Bank of
India and its associates; Regional Rural Banks (RRBs); foreign banks; and
other Indian private sector banks. The term commercial banks refer to both
scheduled and non-scheduled commercial banks regulated under
the Banking Regulation Act, 1949.
With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment services are
expected to be strong. One may also expect M&As, take overs, and asset
sales. In March 2014, the Reserve Bank of India allowed Warburg
Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank)
to 10%. This is the first time an investor has been allowed to hold more
than 5% in a private sector bank since the RBI announced norms in 2011
that any stake exceeding 5% in the private sector banks would need to be
vetted by them.
In recent years critics have charged that the non-government owned
banks are too aggressive in their loan recovery efforts in connation with
housing, vehicle and personal loans. There are press reports that the
banks' loan recovery efforts have driven defaulting borrowers to suicide.
7.Tele Banking
Tele Banking facilitates the customer to do entire non-cash related banking
on telephone. Under this devise Automatic Voice Recorder is used for
simpler queries and transactions. For complicated queries and
transactions, manned phone terminals are used.
The trend were seeing is that HSAs are growing rapidly, and thats not
going to abate anytime soon, Boyles says. He estimates that only 2,300 of
the nations 12,000 banks and credit unions offer HSA options, and that
number isnt likely go up, meaning many banks are foregoing their share of
a growing market. [Financial institutions] will keep living with the status
quo.
Unfortunately, savings accounts are not tied one-to-one to the prime rate
[set by the Federal Reserve], she says, but its probable banks will
increase saving account rates.
The Bank rate CD forecast for 2016 projects a modest increase in CD rates
to 1.02 percent for one-year CDs and 2.21 percent for five-year CDs.
Our mantra at Bank rate is it pays to shop around, Hamrick says. You
can still find accounts that have little or no fees.
Retailers have been a little slow to sign on, Gonzalez says. They have
been waiting for the big-box retailers to [pilot the technology]. Now that big
merchants are successfully accepting money via smart phones, smaller
companies may be ready to jump aboard the mobile payment bandwagon.
The ability to make remote deposits has been limited mainly to large,
national banks, but look for the services to expand in the coming year.
Gonzalez estimates regional banks and large credit unions should be ready
to roll out the technology in the next 12 months.
2. Meanwhile, the State Bank of India, the nations largest lender, will
catapult itself into the big league of the worlds top 50 banks by assets in
2017 by merging its five associate banks with itself. The combined entitys
balance sheet will be at least Rs37 trillionfive times that of ICICI Bank Ltd
In 2015, SBI ranked 52nd in the world by assets, according to Bloomberg.
Following the merger, everything remaining the same, it would be ranked
45th. A larger balance sheet will enhance its risk-taking ability and expand
its bandwidth to give loans. Its success may also encourage the
government to tread on the path of consolidation for other state-owned
banks, although the context is different.
3. Is the nightmare of bad loans behind us? We will get to know in 2017.
Between August and December 2015, the RBI had inspected the loan
portfolios of all banks and asked them to clean up their balance sheets by
March 2017. In absolute terms, the gross non-performing assets or NPAs
of the listed banks sequentially or on a quarter-on-quarter rose 6.44% in
the September 2016 quarter, lower than 8.87% in the June quarter, and
around a 32% rise over both the March and December 2015 quarters.
Clearly, it has been coming down. After provisions, the rise in net NPAs in
the September quarter was 4.81%, half of what we had seen in the June
quarter (9.13%) and much lower than the 34.62% rise in March and
33.65% rise in December. If the trend continues, we will see a better
picture in 2017, but all of them will not be back in the pink of health.
4. Indias Rs65, 000 crore microfinance industry will change its ways of
working in 2017, in the aftermath of the ban on high-value notes. Around
85% of the loan disbursements by the microfinance institutions (MFIs) and
close to 95% repayment or collection of loans have traditionally been in
cash. To survive and flourish, the MFIs will forge alliances with different
kinds of bankssmall finance, payments and universal banksas well as
digital wallet service providers and disburse and collect money through the
banking channel. This new architecture will make loans expensive for the
MFI borrowers as the money cannot be disbursed at their doorsteps
anymore. They would need to travel to the nearest bank branch or the
business correspondent and, in the process, they may lose half-a-days
wage and/or incur costs in transport. On the other hand, the operational
cost for the MFIs will come down as they would not need so many people
for the disbursements of loans and collection of repayments. This will help
them bring down the price of loans and compensate for the additional cost
that the borrowers will incur.
5. Not the MFIs alone, all non-banking financial companies (NBFCs) will
have to change their business model following the clampdown on cash. In
the past couple of years, this sector had been growing at a fast pace, but
now things will change. Many of their customers are not in the income tax
bracket and they earn their salary and wages in cash. Till now, while
assessing their repayment capacity, these firms were taking into account
the customers official income as well as the surrogate income in cash, but
now they would need to change the risk assessment process. And, the
most sought-after product, loan against property or LAP, may also face a
tough time. While home loans are the safest bet for the bankers as they are
backed by securities, LAP, the equivalent of home-equity loans
internationally, could be more than 50% of the total mortgage book of many
NBFCs. Small and medium entrepreneurs are big buyers of LAP and as
their transactions are mostly in cash; they are being hit the hardest. The
NBFCs would need to look for newer products to grow.
Brett King, best-selling author and CEO/founder of Moven adds, 2017 will
be the year of the digital-direct effort by banks. In typical form, 7-8 years
after Simple and Moven were founded, banks will finally figure out that
customers arent visiting branches to open accounts anymore and that
digital acquisition is imperative.
Below are the top 10 predictions and selected insights from this years
trends and predictions report:
Over the next few years, banks must embark on Data Gentrification efforts
not just cleaning up the data they have, but collecting and using BETTER
data, says consultant Ron Shevlin from Cornerstone Advisors. Data that
better predicts and explains consumers financial health, directions and
trends in their financial health, and actions needed to better improve
financial health.
4.Use of Open APIs: APIs were not even listed as a 2016 trend, but is
number 4 in 2017. The use of open APIs provides banks the ability to
flexibly distribute products through third-party channels provided by
FinTech partners, facilitating innovation and reducing time to market. Banks
could also use open APIs to incorporate third-party offerings into their own
product suites, offering a broader range of services, which would likely
boost customer loyalty.
2017 will be the year of open marketplaces and platforms,
states Chris Skinner, author and CEO of The Finanser Ltd.
Platforms support the rapid cycle deployment of microservices into a
financial marketplace. Those include apps, APIs and analytics that
transform the back, middle and front office respectively. As the
financial world is rapidly moving to open, loosely coupled
marketplaces, any bank with old legacy technology will start to look
like a dinosaur.
In 2017, there will be a widening of the gulf between banks that are
building meaningful partnerships with FinTech firms and those that think
that they are because they have a couple of tech vendors and a
procurement department, according to JP Nicols, managing director of
Fintech Forge and chairman of Next Money U.S.
6. Expansion of Digital Payments: Despite an increase in awareness
of mobile payments, usage continues to remain flat, illustrating the
challenges in changing consumer behavior when merchants and issuers
cant deliver a strong value proposition. To stimulate mobile payment use,
financial institutions will need to test discounts and rewards while
improving the consumer experience.
Matthew Wilcox, senior vice president of marketing strategy and
innovation at Fiserv predicts, Faster payments will start to become the
standard in the U.S. Faster payments will start with simpler payment types,
but will evolve during 2017. Acceleration of payment speed can help
financial institutions regain control of their customers payment relationship
and help drive towards their goal of increasing digital engagement.
2017 will be the year of RegTech, states Matteo Rizzi, co-founder of the
FinTechStage. Regulators are beginning to create environments where
innovators and incumbents can find common ground before scaling their
product or solution. Cross-pollination, and a more coordinated approach
among regulators across geographies, will help FinTech startups while
facilitating a better collaboration with legacy financial institutions.
David Brear, CEO and founder of 11: FS in London adds, PSD2 will put
massive pressure on the U.K. incumbents, global regulators will embrace
FinTech competition and regulatory concessions, Africa will embrace APIs
and financial inclusion will become a mainstream and actionable topic. At
the same time, the U.S. will embrace change in the regulatory and political
system.
3. Efficiency
Excellent efficiencies are required at banker's end to establish a balance
between the commercial and social considerations Bank need to access
low cost funds and simultaneously improve the efficiency and efficacy.
Owing to cut-throat competition in the industry, banks are facing pricing
pressure; have to give thrust on retail assets
6. Competency gap
The competency gap needs to be addressed simultaneously otherwise
there will be missed opportunities. Placing the right skill at the right place
will determine success. The focus of people will be doing work but not
providing solutions, on escalating problems rather than solving them and
on disposing customers instead of using the opportunity to cross sell.
References
"Financial Services: Getting the Goods". IMF. 22 October 2017
Retrieved 26 October 2017.