Impact on Indian Commercial Banks

Financial system is the most important institutional and functional vehicle for economic transformation of any country. Banking sector is reckoned as a hub and barometer of the financial system. As concern of the economy, this sector plays a predominant role in the economic development of the country’s geographical pervasiveness of the bank coupled with the range and depth of their services matter and system an indispensable medium in every day transactions (Dutta, B.K. “Monetary Discipline and Indian Banking pp. 147). The virtual monopoly of banks in terms of mechanism touches the lives of millions of people every day and everywhere. Thus, the banking sectors has been playing a significant role as growth facilitator. Change is the only constant factor in this dynamic world and banking is not an exception. Financial sector Reforms set in motion in 1991 have greatly changed the face of Indian Banking. The banking industry has moved gradually from a regulated environment to a deregulated market economy. The market developments kindled by liberalization and globalization have resulted in changes in the intermediation role of banks. “The pace of transformation has been more significant in recent times with technology acting as a catalyst. While the banking system has done fairly well in adjusting to the new market dynamics, greater challenges lie ahead. Financial sector would be opened up for greater international competition under WTO. Banks will have to gear up to meet stringent prudential capital adequacy norms under Basel II. In addition to WTO and Basel II, the free trade Agreements (FTAs) such as with Singapore, may have an impact on the shape of the banking industry. (Uppal, R.K. & Kaur Rimpi “Banking Sector Reforms: Policy Issues and fresh outlook,” vol. 31 No 3). Banks will also have to cope with challenges posed by technological innovations in banking. Banks need to prepare for the changes.