ECONOMIC

Given the high growth potential of the economy and favourable demographics, banks have immense opportunities to expand their business with traditional as well as innovative products.
However, they face a number of challenges. Important among them are two: to maintain capital adequacy and to put in place risk management systems that would meet global standards.
For some of the larger banks, the process of moving towards the Basel III regulatory regime has already begun.
Studies by the RBI show a high level of inter-linkages among banks and this introduces an element of vulnerability.
Management of asset quality has always been a challenging task.
There is an urgent need for all banks to address the NPA-related concerns and tighten their credit risk management systems.
Over the past 15 years, Indian banks have raised the productive level remarkably and, in the process, moved closer to global benchmarks. Yet, they should do a lot more by way of attracting people's savings and channelling them into investment.
In effect, this means banks will have to cut their ‘net interest margin', which in any case is high compared to some emerging economies.
In the long term, the bank sector should work towards financial inclusion, where its products are accessible to everyone and its services run efficiently. In the medium term, banks have ample opportunities to grow, the challenges notwithstanding.