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FOUNDERS’ DAY LECTURE
BY
Hon’ble Mr. Justice M N VENKATACHALIAH
(Former
Chief Justice of India)
BANKING IN A FAST CHANGING WORLD
Karnataka Bank has
a proud record of dedicated service of ninety years since its
inception in 1924. It has grown from strength to strength in all
areas of Banking. On this occasion I take the opportunity to remember
the founders with gratitude and the successive teams of dedicated
professional s which have guided the destiny of the Bank. The
District of Dakshina Kannada has had the unique distinction of
nurturing Banking Services in the most efficient and imaginative way
and have rightly earned the grateful appreciation of the State and
the nation.
The present
management comprised of dedicated professional bankers deserves our
gratitude for setting up high standards of efficiency and ethics,
through its 518 branches through out the country. Today, Karnataka
Bank has 116060 shareholders and 68 lakh constituent clients, 6241
officers and employees serving the Bank. The deposits have reached
34620 crore rupees.
II.
Banking Industry in India
The two decades
after Indian Independence laid solid foundations for the Banking
Industry. The Banking Regulation Act 1949 was ushered in to regulate
commercial banking . In December 1951 there were 566 Banks. By the
end of 1968 the number declined to 281. Non-scheduled banks had
collapsed in large numbers.
In 1969, fourteen
Banks and in 1980 six more were nationalized. Between 1969 and 2012
the number of branches increased from 8262 to 97111. Out of the 97111
branches 61289 were Rural and semi-urban indicating a marked shift
towards rural and semi urban priority. The impact of this was that
as against one branch for 60000 population in 1969, the ratio came
down to one branch for 13000 population. The year 1985 saw some
radical policy changes in customer service, credit management , staff
productivity and profitability etc.
Rapid changes in the
policy of advances to the priority sector was witnessed during this
period. In 1969 it was just 5 billion rupees. In 2012 it became
nearly 15000 billion rupees. The priority lending has risen to 30% of
gross bank credit. Stagnancy in agricultural credit and declining
share of SSI was the reason in 2005 for the RBI to assert that the
“only sectors that impact large population and are employment
intensive such as agriculture, tiny and small scale industry should
be eligible for priority sector” and called for “an
examination and debate of these matters in depth.”
This debate drew
attention to the need to improve access of the poor to the banking
system and to the model of linkage of Banks to self help groups.
III.
Self Help Groups and Micro Credit
Thus emerged and saw
the impressive growth of about 8million self help groups involving
103 million Rural House holds linked to Banks for cumulative credit
disbursement. The beautiful Bangla Desh experiment of Grameen Bank
by Nobel Laurate Mohamad Yunus was a great and revolutionary success
story. It was a celebration of the skills of the poor that had been
greatly under-utilised . This system of Group credit with an initial
experiment of 27 to 42 fisher women by Mohamad Yunus, a Full Bright
scholar from Vanderbilt University blossomed into a great movement ,
a great organization which has handled 12 billion dollars since its
inception.
IV.
Global Trends in Banking
The IBM Study “
Banking 2015: Defining the Future of Banking” has a unique
insight into the competitive forces that confront bankers in the next
decade. The study predicts a growth rate of 7.6 % in Asia-Pacific
region. It also identifies some key trends which will determine
success, such as a new brand of tech savvy users of financial
services; market consolidation of bigger brands; emergence of
community banks, institutions providing specific services; emergence
of new skilled work force; high transparency and sharply focused
technologies; a customer centric market dominated by global mega
banks and highly specialized financial service providers; and most
fierce competition attended by global regulation and, not the least,
ever increasing technological pressure driving great changes in the
nature and talent of work force. “ Innovations in products,
processes , relationships and business models will be the primary
path to sustainable growth.”
V.
Technology Explosion in the 21st
Century
The world is
changing at a bewildering pace. “It is no longer divided by
ideology, it is divided by technology.’ Science and technology
will usher in changes which will border on the fantastic. The first
two decades of this century will be the era of New Biology, and
Biotechonogy. Management and harnessing of knowledge is the key to
success. Peter Drucker in his book “ Managing the Next Society”
, says “We clearly face years of world disorder, especially
in the Mid-east. But in a period of unrest and rapid changes such as
we surely face, one cannot successfully mange by being clever….In
times of great uncertainty and unpredictable surprises, ever basing
one’s strategy and one’s polices on these unchanging and
basic trends does not automatically mean success. But no to do so
guarantees failure.”
“Aubrey-de-Grey
[one of the world’s best known life extension researcher and
founder of Strategies for Engineered Negligible Sen’escence’]
tell us “that by the end of this century human life span would
be in the neighbourhood of 5000 years! .The Time Magazine [ Feb 21,
2011] has the Lead-Article: “2045: The Year Man Becomes
Immortal” by Lev Grossman refers to the work of Raymond
Kruzweil who believes that a moment will arise within 35 years when
computers will become intelligent and not just intelligent but more
intelligent than Humans. When that happens , Humanity – our
bodies , our minds, our civilization, will be completely and
irreversibly transformed.” He believes that this moment is not
only inevitable butimminent. Vernor Vinge in the “The Coming
of Technological Singularity ‘ says that within 30 years we
will have the means to create a ‘super human intelligence’.
Shortly after that the human era will be ended. The era of
Bio-Artificial organs will take over.
Speaking of the rate
of change a Scholar observes:
“The past is
not a reliable guide to the future. The 20th
Century was not 100 years of progress at today’s rate but
rather was equivalent to that of the 20 years, because we’ve
been speeding up to the current rates of change. Because of this
exponential growth the 21st
century will equal 20000 years progress at today’s rate of
progress – 1000 times greater than what we witnessed in the
20th
century, which itself was no slouch for change.”
VI
New Opportunities and Challenges before the Banking Industry:
“Go
Mobile or Die”
Varun Goyal ,
knowledgeable specialist in banking matters says:
“It is rather
ironic that it took a global financial crisis of massive proportions
for emerging market banks to unleash their potentials. Although
banking institutions from all over the world were impacted by the
crisis, those in emerging markets were hurt less thanks to a
combination of prudent banking and capital management practices , the
existence of huge unbanked markets which continued to fuel growth,
and a relatively healthy macro-economic situation”.
“Technology
has played a major role in the development of the banking sector in
emerging markets. A well known technology analyst firm predicts that
emerging economies in Asia will increase their spending on retail
banking technology by 8.3% in 2012, to cross US$ 10 billion by the
end of the year”.
“Of the
various trends and technologies in the emerging markets banking
landscape, mobile banking is unarguably the front-runner. Thanks to
their reach, ease and capabilities, mobile devices have outperformed
the ‘e’ space to achieve a penetration of more than 50%
even in countries with per capita GDP as low as $5000. In fact , 75%
of global mobile subscribers are located in emerging markets”.
In India it is said
there are 310 million Saving Bank accounts. But having regard to the
possibility of multiple accounts their number is estimated at 200
million – implying that 83% of the population has no access to
banks. There is therefore a tremendous scope for growth. There is an
estimated 675 million active mobile connections. By 2020 mortgages
are estimated to cross 40,000 billion rupees. Wealth management will
be a big business. Mobile Banking will witness explosive growth and
change the entire Banking scenario. So does investment banking and
underwriting, infrastructure funding. There will be tremendous
pressure on staff-talent and there will be a great demand on
out-sourcing of services. Subsidiary and Auxillary and supportive
institutions will emerge in a big way, particularly in the area of
technological services.
In short there will
be great changes in the Banking Institutions, practices, ethics and
economies.
VII.
Problems of Growth : Protection from Crimes and Frauds.
Today there is
increasing disenchantment with quality of governance by the
governments . There is pervasive corruption in public life. There is
bureaucratic indifference to the day to day needs and problems of the
citizen. Extra legal systems and parallel governments are acquiring a
strong hold: the emergence of extra-legal systems is itself a symptom
of the rebellion against status-quo in the developing countries. An
economist observed that ‘through out the Third World
extra-legal activities burgeon wherever the legal systems imposes
rules that thwart the expectations of those it excludes. People take
refuge in it when the cost of obeying the law out-weighs the
benefit’.
A Report in a
Mumbai News paper published two articles on the 8th
and 9th
January 2012, suggesting that Mumbai was leading in banking frauds
and that one leading bank is a ‘run away leader’ in the
“Fraud-share” with nearly 50% of the frauds being
reported from the bank. In the Financial year 2010-11 Banks in Mumbai
reported 787 frauds involving 1049 crore rupees,, followed by Delhi
with 355 crore rupees. It was also reported that rate of recovery of
lost money is dismal. The Report said in the last 5 years out of a
total Rs 182 crores lost in Mumbai, only 63 crore rupees were
recovered. There is also a serious threat of cyber-crimes.
VIII
. Epilogue
Banking has a
history of thousands of years starting with prototype banks of
Merchants with grain loan, and other transactions with money at the
centre. From the rich cities in Europe it spread out from its
dynastic origins to commercial and merchant banks. History of Banking
is a fascinating story of money itself. Temples were storage of
money and lender of credit. When the Federal Governments power to
establish a bank in America was questioned the court said the power
to establish a bank was an incident of the power to collect money in
the form of taxes.
The evolution of
concept of interest on deposits is itself an interesting study. A
manner of discounting ‘ interest’ to the depositors was
developed in the form of granting an ‘interest’ to them
in the profits earned by the investment of their money. How
derivative economic products were developed is a case study of the
banking genius. But when practiced to excess this virtue would render
bankers the victims of their own genius as it happened in the case of
economic collapse as a result of sub-prime lending in the USA. It
would be appropriate Karnataka Bank sponsored an expert of study
of the great story of evolution of Banking into the most fascinating
technological innovation that it is today. Today by ‘Remote
Deposit’ you can in many countries deposit a cheque with the
Bank without physically presenting it but by transmitting its
scanned digital image to the bank. We can expect dramatic changes in
Banking industry in a digitally dominated world. Bankers must evolve
themselves into economic , technological and social philosophers to
be able to foresee and foretell the future.
Your Bank has the
potential to nurture this new age vision. I wish it every success.
Thank you.
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