Lending and interest rates on domestic term deposits have been freed. Accounting disclosures, income recognition and loan loss provisioning norms are stricter. Banks have to be adequately capitalized in line with international standards. Banks are allowed to provide long-term loan, and take up leasing and other financial services. Banks are required to set up asset liability management committees.
Indian banks remain grossly overstaffed due to strong unions and lack of any exit policy.
The high expenditure on employee salaries leaves little money for technology upgradation. The technology usage in Indian banks is very low. The quality of service of Indian banks is also poor. Margins in fund based business have also come under pressure due to a sharp fall in interest rates, with disproportionate reduction in cost of deposits. Increasing disintermediation by corporates has led to rising investments by banks in lower yielding CDs, NCDs and preference shares.