g padmanabhan : techno – banking – prospects and challenges inaugural address by mr g padmanabhan, executive director of the reserve bank of india, at the 6th et banking technology conclave'12, mumbai, 9 october 2012. * * * inputs from shri b sambamurthy, director, idrbt and the assistance provided by nikhila koduri, radha somakumar and saswat mahapatra in the preparation of this speech is gratefully acknowledged. distinguished ladies and gentlemen, i am honoured to be invited to deliver the key note address at the 6th edition of the et banking technology conclave. i am also thankful to the organizers for their kind gesture in asking me to deliver the inaugural rather than the valedictory address, as originally intended. i was rather apprehensive of delivering a valedictory address in a seminar like this, since – drawing a cricket analogy – it would be like going in as the last man to bat, having just walked into the stadium, having no clue about the state of the match! over the past few decades, modern business organizations have been investing increasingly substantial amounts of money in information technology ( it ) with the objective of improving their operational efficiency, product innovation and competitive ability in the industry. this has enabled them in simplifying their processes, improving efficiency levels, and also reaching out to a wider range of customers. the banking sector too has followed the same path. use of technology has also opened up new markets, new products, new services and efficient delivery channels particularly for the banking industry. further, technological innovation has enabled a broader reach for consumer banking and financial services, and in india ’ s case, it is playing an important role in moving towards continued and inclusive growth. global perspective let us see what is happening globally and how technology enabled banking is being taken forward. in the recent past, banking has seen a decrease in the number of traditional competitors due to industry consolidation. at the same time, there has been an increase in the number of competitors for each customer and relationship. technology - enabled improvements and the desire to improve earnings have led many banks to enter new markets ( global and national ) driving increased competition in local markets by the adoption of new technology. competition from non - banks and virtual entities have also increased. this, combined with a growing appetite for customization and personalization, has driven the need to constantly transform applications and offerings to meet new competition and changing customer preferences, expectations, and needs. as

by the changing nature and ramifications of banking crises in several parts of the world. what were earlier considered to be the ideal prudential norms for preventing individual bank failures have been proved to be severely inadequate to deal with systemic instability or prevent the contagion effects. in various international fora, an intensive effort is now underway to evaluate the existing norms and practices being followed by banking systems in different countries and to assess how far these norms have helped or prevented instability in the banking system. india has been fully participating in these discussions and is helping in the formulation of norms and guidelines which take into account the views of the developing countries, where market structures and growth objectives are different than in industrial countries. issues currently under scrutiny include : the corporate governance system in banks, risk management, banking regulation and supervision, transparency and accountability and public policies relating to moral hazards in banking sector. the basle core principles for effective banking supervision have underlined the need to adhere to 25 basic principles for adopting an effective supervision system in the aftermath of the east asian crisis. more detailed work is now in progress after the recent publication of three reports by the willard group, constituted by the bank for international settlements, on enhancing transparency and accountability, strengthening financial systems and managing international financial crises. the willard group reports have argued for improving the credibility and accountability of the banking system through more transparent accounting practices and better disclosure norms. they have drawn attention to the need to develop a stable and efficient financial system through strengthening the corporate governance system and risk and liquidity management among banks and putting in place a proper safety net arrangement for the banking system. they have also – 7 – argued for a more organised approach in preventing international financial crises and a more orderly system of creditor and debtor coordination and effective solvency laws. the recent international consensus on preserving the soundness of the banking system has veered around certain core themes. these are : effective risk management systems, adequate capital provision, sound practices of supervision and regulation, transparency of operation, conducive public policy intervention and maintenance of macroeconomic stability in the economy. an important issue which we, along with other countries, would need to address is how to ensure that individual banks govern themselves according to the best practices in corporate governance. this, as mentioned before, involves according utmost importance to prudent business practices, such as developing an effective internal control system, monitoring and managing the whole range of financial and commercial risks, and instituting a proper system of asset and liability management