Globalization And Impact On Indian Banking Sector Finance Essay

Globalization And Impact On Indian Banking Sector Finance Essay INTRODUCTION PREVIEW This is an introduction chapter which describes the structure of the dissertation. It begins with a brief introduction to the area of research, purpose and aims and objectives set for this research. This section also includes justification for selecting banking sector to study the impact of globalization for this study. 1.2 INTRODUCTION A bank is a licensed body by the government which is primarily engaged in the process of borrowing and lending money which in turn helps in economic development of the country. The customers of a bank are mainly households government, public/ private corporations who invest and borrow funds from these institutions. Banks have a monopoly in creating credit in the market. If companies are provided with finance, it encourages enterprises which leads to increase in production, leads to promotion of jobs, less reliance on foreign imports. If personal customers are provided with finance it would stimulate the demand for goods which then leads to an in increase production of goods. Therefore banks play a very important role in the economic development of the country (Cox 1983, pg2-4). Initially there were many barriers in the banking sector through out the world. These were lack of information about foreign companies, tax liability which was applicable to income earned from these transactions, cost of executing international transactions were expensive. Regulations were eliminated in 1980s and early 1990s. Government allowed privatization in 1990. Government owned firms were sold to individuals, trading of stocks of firms was allowed publicly. This led to globalization, deregulation and liberalization. Under the influence of globalization Internet and telephone banking, ATM, credit and debit cards and many other services provided by the banking sector were introduced which has increased the efficiency of banks and has brought the banking revolution( Madura 1995, pg-7 ). Globalization has led to a revolution in the banking sector though Indian banks stiff face severe challenges . This study will highlight these challenges and the researcher will also suggests some of solutions found in the literature to overcome these challenges and will co-relate solutions found through primary research. This will help in understanding the Indian banking sector in dept. In addition to this if the Indian banking sector overcome these challenges it can mark its place with other leading global titans. 1.3 RESEARCH AREA To examine critically the impact of globalization on Indian banking sector highlighting the challenges faced by the Indian banks is the primary focus of this research. Since the days of Bretton Woods era financial world has witnessed tremendous changes. Technological change and cut throat competition has enforced the financial world to adopt better techniques and attract customers. The range of products and services were limited in the 70s(Raul 2005, pp 39). After gaining independence in 1947 Until 1991 there has been regulations like administered interest rates and government control etc. upon implementation of recommendations by Narsimha committee led to rapid and radical changes. Now the banking sector offers wide range of services like securitization, leasing and hire purchase, custodial service, depositories , factoring etc. New financial institution, dis-intermediation, greater professionalism and technological innovation have emerged as a result of liberalization, privatization and globalization. In addition to this capital adequacy norms, income recognition and assets classification were introduced in the ambit of banking activities and banks are compelled to cope up with the process of deregulation, competition, asset liability management and globalization(Raul 2005, pp 39). 1.4 AIMS AND OBJECTIVES The main aim of this research work is to analyze critically and examine the concept of globalization and its impact on the Indian banking sector along with and challenges which arise as a result of globalization. The researcher also aims to find out the adverse effect of these challenges and what measures can be taken to reduce them. Research question A study on the impact of globalization on the Indian banking sector highlighting the challenges faced by the public sector banks in India. The main objectives of this research are as follows:- To examine the the challenges faced by the Indian public sector banks with regards to technology, human resource, customer service , NPAs. To analyze and explore the potential solutions to overcome these challenges. 1.5 PURPOSE OF THE STUDY Indian banking sector is resilient and has shown tremendous growth yet it faces many challenges which needs to be controlled and managed. Recently there have been waves of bank failures throughout the world. Banks became insolvent due to which there was financial downturn globally. Banks are highly volatile in nature and have a direct impact on the economy of a country. So every country should aim to make their banking system stable and sound only then they will be able to withstand the shocks. Many changes have taken place in the Indian economy since 1990s that has revolutionized and revitalized the Indian economy. During this phase the key growth sectors and consumer demands have undergone a series of changes. The researcher is keen on investigating the impact of changes with respect to banking sector. India is a developing economy there lies many areas in the Indian banking sector to be explored also this is an untouched area in the UWIC. All the above mentioned points motivated the researcher to study in detail about the Indian banking sector, impact of globalization on it, and challenges arising as a result of globalization also highlighting potential solutions. This piece of work can provide guidance or a framework for other developing countries which are also facing similar challenges. Moreover ,The researcher is a permanent resident of India and would be able to gain access or conduct interviews of the bank managers to retrieve information which would further form a basis of research. 1.6 JUSTIFICATION FOR THE RESEARCH ROLE OF UBLIC SECTOR IN BANKING Anglo Saxon and Asian model are the two models of ownership by the banks. Many developed countries have adopted the Anglo Saxon model. Under this model the key decisions are taken by the top executives independently dictated by short term requirements and regulations may not be stringent .The latter model is adopted by many developing countries like India . India has a financial system which has substantial ownership by the public sector and has a different structure of incentives for the top executives. It is more likely that in this model where more complex products are involved there is less financial innovation . thus this sector is likely to be less efficient and less innovative but would be more steady. The advantage of this sector during the time of crisis is the perceived sovereign backing. While the former model during crisis came under pressure whereas the later model like the presence of public sector made the Indian financial system sound and stable. It was evident from t he fact that during 2oo8 and 2oo9 foreign and private sector banks NA ratio increased significantly and as an after effect of crisis , the public sectors NA ratio declined. It was lowest amongst all bank groups. For the Indian Banking sector , the public ownership has proved to be a source of strength rather than weakness. On the contrary to the belief that public ownership weakens the efficiency of a firm does not stand true in the case of the Indian banking sector. RBI organized an analytical exercise which indicates that cost and technical efficiency of the public sector banks have been much higher than private and foreign banks in India recently. Moreover public sector banks key role played by the banks is social development and to meet the objectives of developmental finance which is very essential for a developing economy like India. public ownership plays a significant role in the economic development of the country. (RBI 2OO7 2OO8 , pp 22 In addition to the above mentioned reasons the main motive of the researcher to highlight the challenges faced the public sector banks was because if these banks overcome their challenges they can mark a place for itself with the other leading banks. 1.7 STRUCTURE OF THE STUDY This dissertation is divided into five chapters which are as follows:- Chapter 1- This is an introductory chapter. It highlight the aims and objectives; purpose ; justification of the study. This chapter explains the structure/body of this dissertation . Chapter 2- This chapter forms a base/ platform for this dissertation. It consists of ideas and opinions put forward by scholars and different authors who have successfully researched on this field. The researcher has critically reviewed the literature also highlighted the key issues, ideas, arguments by different authors. This chapter mainly covers globalization , its characteristics, theory of globalization, Indian banking sector and challenges faced by the Indian banks. Chapter 3- Primary focus of this chapter is on the methodology adopted for this research. This will include the research design, data collection methods, research ethics, validity and reliability. It also includes limitations of this study. Chapter 4- This chapter explains the analysis of the data/information gathered . Interviews and questionnaires are critically analyzed to give a clear picture about the study. Chapter 5- The previous chapter of data analysis enabled the researcher to draw conclusions and provide recommendations which is described in this chapter, along with the research findings and research area which the researcher intends to cover and undertake next year after successful completion of this research. 1.8 SUMMARY This chapter explicitly explains the structure of this dissertation along with aims and objectives set up for the study by the researcher. It also explains about the research area, purpose and highlights the reason for selection of banking sector in Indian to study the impact of globalization.