Issues Faced by Banks in Global Markets (Case Study) : MADHAV LUTHRA (1520468)

MADHAV LUTHRA[1520468] [GLOBAL BUSINESS FINANCE]
Issues Faced by Banks in Global Markets [Case Study]
The banking sector in India is well capitalized, with capital ratios being above the global
average. The average tier-1 Capital Adequacy Ratio (CAR) of the Indian banking industry is
above 10 per cent compared to the Basel III norm of 8.5 per cent including the contingency
buffer. Moreover, the Reserve Bank of India, in its Financial Stability Report (FSR) has also
asserted that the sector remains well capitalized with both core capital adequacy and leverage
ratios at comfortable level.
The banking industry is far one of the most difficult type of business to manage. It is simply the
business where stocks are hard to analyze, unstable and most of all, clients are demanding. We
have to realize that in the current situation of recession, the banking industry is being hit hard.
This is mainly because money circles around banks. Companies would not be able to move if it
wasn’t for them. However, there are also many major and as well as minor issues that they face
in the global market.
One of the major problems of banks is money laundering. It is simply the practice of engaging in
financial transactions to conceal the identity, source, or destination of illegally gained money
Traditionally, banks have economic functions including issuance of money, netting and
settlement of payment, credit intermediation, credit quality improvement and maturity
information. According to Holley (1997, p. 2), international commercial banks are now having
an expanded role as opposed to their traditional roles. That traditional role basically refers to
financing developing countries. However, commercial banks were never intended for long-term
financing of capital projects. It is in this sense that commercial banks are gaining reputation
nowadays as commercial banks aid transactions despite the borders.
Global interactionism is now regarded as the globalization of financial services
including banking services. According to Berger et al (2002) basic to all banks are both
nationality and reach. There are specific aspects contributing to the globalization of banking
services such as technology, increasingly complicated customer requirements and needs and
sustainable growth brought by competition. In the last three decades, many states and
government embrace the idea of lifting important international banking regulatory barriers,
making possible the transfer of cash as well as information via technology from geographically
dispersed locations. Risk is inherent in any commercial activity and banking is no exception to
this rule. Rising global competition, increasing deregulation, introduction of innovative products
and delivery channels have pushed risk management to the forefront of today’s financial
landscape.
MADHAV LUTHRA[1520468] [GLOBAL BUSINESS FINANCE]
SOLUTION TO THE PROBLEM FACED:

We are in the new age and as we all know, technology plays a big part in every aspect
of businesses around the world. New technologies are always being introduced that is why banks
should also focus on finding these technologies to help them cope up.
In the regulated banking environment, banks had to primarily deal with credit or default risk. As
we move into a perfect market economy, we have to deal with a whole range of market related
risks like exchange risks, interest rate risk, etc. Operational risk, which had always existed in the
system, would become more pronounced in the coming days as we have technology as a new
factor in today’s banking. Traditional risk management techniques become obsolete with the
growth of derivatives and off- balance sheet operations, coupled with diversifications. The
expansion in E-banking will lead to continuous vigilance and revisions of regulations.
Banks would find the need to develop technology based risk management tools. The complex
mathematical models programmed into risk engines would provide the foundation of limit
management, risk analysis, computation of risk-adjusted return on capital and active
management of banks’ risk portfolio. Measurement of risk exposure is essential for
implementing hedging strategies.
CONCLUSION:
Despite the radical new trends emerging, banks will continue to play their role as trust-enablers
in all commercial activities. Their role as financial intermediaries and payment enabler’s will
also continue, but they will be outsourcing all non-core activities to specialized service providers
and insource opportunities where they have a saleable value proposition. The transfer of money
will not generate profits-it will, however, be the basis of other services that banks will provide.
The level of integration that banks achieve with their customers supply chain will determine
profitability.
As a conclusion, banks are looking for new ways to make the banks are safer, convenient and
better place for the customers. New Information Technology solutions can achieve this by
integrating the different modules within the bank. This can reduce costs, increase profit and
customer satisfaction and even employee motivation.

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MADHAV LUTHRA[1520468] [GLOBAL BUSINESS FINANCE]

Issues Faced by Banks in Global Markets [Case Study]

SOLUTION TO THE PROBLEM FACED:

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