Impact of Globalization on Indian Financial Services Industry

BYdeliver profits from customers through their
,M.B.A.,Ph.D.,lifetime will demand a significant investment in
Professor and Headdata gathering and relationship management and
E-Mail:may therefore require a shift in the prevailing
ABSTRACTcost-income model. This includes a re-think of
Reforms of the financial sector constitutes thetraining, reward and performance management
most important component of India’sstrategies including a move from volume-based
programme towards economic liberalization.  Theincentives to rewards geared to client satisfaction
recent economic liberalization measures haveand the profitability of the customer over the
opened the door to foreign competitors to enterlifetime of the relationship. Success will also require
into our domestic market. Deregulation in thetimely and insightful metrics on customers’
form of elimination of exchange controls andevolving attitudes and preferences.
interest rate ceilings have made the market moreThe  Financial Services & banking industry is
competitive.  Innovation has become a must forchanging at a fast pace. These changes are
survival.throwing up fresh challenges like managing
Many  of the providers and users of capital havecomplex technological divergence in a converging
changed their roles all over the world.  Financialmarket. Banks strive to constantly offer more to
intermediaries have come out of their traditionalthe existing customer base. To achieve this, they
approach and they are ready to assume moreemphasize on more targeted technology
credit risks.  As a consequence, many innovationsinvestments and high-quality service. To remain
have taken place in the global financial sectorcompetitive, financial institutions will have to renew
which have its own impact on the domestictheir commitment to investing in new technology
sector also. The emergences of various financialstrategically -- to reduce costs, improve
institutions and regulatory bodies haveefficiencies, and boost revenue-generating
transformed the financial services sector frominitiatives.
being a conservative industry to a very dynamicTaking full note of these challenges, OFS puts
one. In this process this sector is facing a numbertogether its banking practice to help financial
of challenges.institutions improve enterprise performance,
In this changed context, the financial servicescomply with regulatory mandates, boost
industry  in India has to play a very positive andoperational efficiency, and better serve their
dynamic role in the years to come by offeringcustomers through OFS’ spectrum of
many innovative products to suit the variedsolutions and services derived from proven track
requirements of the millions of prospectiverecord of domain expertise.
investors spread throughout the country.The Challenges
OverviewAmong the key IT challenges facing the Financial
Reforms of the financial sedctor constitutes theServices industry today is:
most important component of India’s- Preserving investments in old systems while
programme towards economic liberalization.  Theleveraging new technologies to drive down
recent economic liberalization measures havetransactions costs, expand and improve customer
opened the door to foreign competitors to enterservice
into our domestic market. Deregulation in the- Integrating enterprise wide disparate systems to
form of elimination of exchange controls andgain operational efficiencies
interest  rate ceilings have made the market- Substantially reducing time for deployment of
more competitive.  Innovation has become anew systems
must for survival.- Reducing IT costs and obtaining better ROIs for
Many  of the providers and users of capital havenew investments in the long-term
changed their roles all over the world.  Financial                Only a carefully thought
intermediaries  have come out of their traditionalout long-term IT strategy backed by execution,
approach and they are ready to assume moreimplementation and support capability can meet
credit risks.  As a consequence, many innovationsthese challenges successfully.
have taken place in the global financial sector.Today's financial services firms face mounting
Which have its own impact  on the domesticpressures on all fronts:
sector also. The emergence of various financial- Credit markets are creating industry turmoil
institutions and regulatory  bodies have- Tightening credit guidelines that threaten
transformed  the financial services sector fromrevenue streams
being a conservative industry to a very dynamic- Growing reporting and risk management
one. In this process this sector is facing a numberobligations like Sarbanes-Oxley, Know Your
of challenges.Customer and Basel II
Growth in financial services (comprising banking,- The difficulties of sustaining growth in
insurance, real estate and business services), afteroverly-saturated markets
dipping to 5.6% in 2003-04 bounced back to 8.7%- Innovative products that address the needs of
in 2004-05 and 10.9% in 2005-06. The momentuma diverse client base such as retirees and young
has been maintained with a growth of 11.1% inemerging and ethnic segments
2006-07.- Growing concerns over customer data security
Impressive progress in information technologyand identity management
(IT) and IT-enabled services, both rail and road- Increasing competition not just from traditional
traffic, and fast addition to existing stock ofcompetitors, but from other organizations that
telephone connections, particularly mobiles, playedexpand their service offerings
a key role in such growth.- The complexities that arise from mergers and
      Because of Globalization, the financialacquisitions and from expanding into the global
services industry is in a period of transition.marketplace
Market shifts, competition, and technological          Whether we are trying to maintain
developments are ushering in unprecedentedcompetitive advantage, looking for ways to
changes in the global financial services industry.position our self better for mergers or acquisitions
Organizations in this highly competitive andor expanding into the global marketplace, the
increasingly regulated industry will especially needchallenges are as complex as they are varied. And
to focus on making themselves more:while we deal with these fundamental concerns,
Ø      Adept to face increasing transactionwe are met with increasing demands from
volumes, regulation and the integration ofinvestors, regulators and customers. The
previously disparate global marketsAnswers
Ø      Agile at identifying and managing riskHow do we succeed in this environment? The
Ø      Operationally efficientfirst step is to ensure that we have the
Ø      Customer – centricinfrastructure and solutions to support our
Ø      Optimized in both business &business strategy. With the right systems in place,
technologyour organization can more rapidly comply with
In this scenario, spearheading IT initiatives hasregulations, operational risk and security issues.
become critically important.We can also open up new product offerings,
Major spending initiative priorities tend to focus onreduce customer turnover and minimize fixed
automation to reduce costs and lessen risk, alongcosts and maximize productivity. In addition, the
with using BPO to gain efficiency and allow internalcompanies can leverage outsourcing opportunities
IT organizations to focus on strategic initiatives.to reduce overhead, while still enjoying the
Delivery of these capabilities at a high efficiencyscalability they need to support future growth or
level but at low costs is one of the majornew initiatives.
success factors for any financial services business.The process of globalization has paved the way
OBJECTIVE:for the entry of innovative and sophisticated
The objective of the present paper is to financial products into our country.  Since the
examine the status of Financial Services IndustryGovernment is very keen in removing all
in India and to study the challenges before thisobstacles that stand in the way of inflow of
industry due to globalizationforeign capital, the potentiabilities for the
          To enhance their competitiveintroduction of innovative international financial
advantage in this changed environment, financialproducts in India are very great.   Moreover,
services institutions are increasingly harnessingIndia is likely to enter the full convertibility era
new technologies to provide superior customersoon.  Hence, there is every possibility of
offerings and streamline internal processes.introduction of more and more  innovative and
Today's dynamic marketplace demands thatsophisticated financial services in our country.
financial services providers emphasize onRealizing all these factors, the Government of
technologically advanced, feature-rich solutions,India has initiated many steps to reform the
that can operate in real-time and with the highestfinancial services industry.
degree of precision and reliability.Ø      The Government has already
Information technology is increasingly beingswitched over to free pricing of issues from
considered as critical to the strategic direction andpricing issues by the Controller of capital issues.
the day-to-day operation of financial servicesØ      The interest rates have been
firms.deregulated
Growth in financial services is being bolstered byØ      The private sector has been
the opportunities of demography, emergingpermitted to participate in banking and mutual
markets and ever more innovative products andfunds and the public sector undertakings are being
services. Yet, organisations also face theprivatized.
challenges of mounting competition, more complexØ      The Finance Act, 1992 has brought
regulation and ever more exacting customerinto effect large scale amendments in the tax
expectations. Effective growth strategies arestructure of long term capital gains.
therefore likely to cut across all operatingØ      The Finance Act, 1994 has given a
processes and functional boundaries. Key prioritiesfurther boost by lowering the lock – in period
include ensuring that the business model takes fullfrom 3 years to 1 year, in order to get the
account of customers’ needs, tax, financialentitlement as a long – term capital asset.
and regulatory considerations and theØ      The SEBI  has liberalized many
organisation’s capacity to change the way itstringent conditions so as to boost the Financial
does business. In turn, the objectives and criteriaServices Industry.
for success need to be clearly measured.In this changed context, the financial services
                    A survey ofindustry  in India has to play a very positive and
more than 250 financial services executivesdynamic role in the years to come by offering
carried out by PricewaterhouseCoopers in 2006,many innovative products to suit the varied
found that respondents believe that existingrequirements of the millions of prospective
customers will be their main source of organicinvestors spread throughout the country.
growth. Creating operations that can retain and