Corporate Banks, Overview of Potential Challenges

Indian financial markets are increasingly converging with global markets, as a result of which the standards in the Indian financial sector are undergoing a process of refashioning to conform with global best practices.

In today’s global Banking arena, Corporate Bankers are facing a string of unprecedented and sweeping challenges in the areas like Treasury Management, Trade Finance, Risk Management, Compliance Management, Electronic Trading and Derivatives Markets. Compounding this are the mounting complexities from ongoing regulatory changes, decreasing margins and fierce competition.

Firstly I would like to mention the foremost competition that corporate banks are facing, that of customer retention and satisfaction. The utmost need is of providing efficient customer services than the competitors. It is important that a bank is financially strong and managerially secure and controllable likely to be an acquirer and not a target for acquisition in the ongoing global consolidation game.

Another major challenge, corporate banks are facing is of Spreading. Spreads are coming down in corporate banking. The strong relationships which the banks enjoyed with corporates is now a thing of the past; relationships now are more volatile and transaction-based. Because of the advance in technology, corporates can now access the same financial markets available to banks directly. In the present day environment, banks will have to depend less on loan products and more on fee-income based services.

And the highly disturbing one is of Non Performing Assets (NPA), the fierce challenge and all banks fight and compete for acquiring the valuable and most profitable assets.  It is a very serious problem and, in my opinion, is a result of exposure to old economy segments such as textiles, steel, etc. Banks are presently powerless to tackle defaulters. The legal system needs to promptly revamped and banks given powers to seize assets pledged, hypothecated or mortgaged and sell them to realize dues without the intervention of courts.

The problem is much more evident in Indian corporate banking, were the entire banking system has, for long, been held hostage to the public policy of social banking. There is no doubt that this policy has indeed helped in the even spread of industrialization in the country and also in bringing about the agricultural revolution. But as the economy moves towards global integration, corporate and business restructuring, scaling up of technology and exposure to foreign competition became issues which Indian business could not be handle properly.

This resulted in many firms in the small-scale sector and large companies in both the private and public sector being unable to service loans taken from banks. The banks too could not easily shed these assets because of the tortuous legal processes. All these factors led to high NPAs in the Indian banking system.

I think the reason for that being the inefficient Credit Assessment Systems. Our systems of assessment are in no way inferior to those prevailing elsewhere in the world. Problems may have arisen due to lapses in the implementation of these systems and also to due to governmental pressure in respect of social lending. But it doesn't completely hold true as well, Many corporates have not been able to cope up with this change in banking industry and also the complete lack of co-ordination between banks prevented a proper exchange of information among banks and institutions, which could have helped avoid much of the prevailing bad debts. 

The corporate banks  have a huge network and are present in every nook and corner of the country and now are rapidly extending to global boundaries as well,only need is of proper control over valuable assets, both capital and human.