v leeladhar : emerging realities in banking and finance - role of new generation managers address by mr v leeladhar, deputy governor of the reserve bank of india, to the students of post graduate programme in banking and finance, national institute for bank management, pune, 3 april 2005. * * * it is indeed a pleasure to be here in your midst today. to be amongst bright young students is not only energizing but also a learning experience - as we look at issues afresh and start by asking basic questions, which at some level are the most difficult. the reserve bank has shared a very special relationship with the nibm - it catalyzed its creation in 1969, provided the venue for its first campus and has been intimately associated with its functioning. while the institute has been a part of the capacity building exercise for the banking sector for over three decades, the pgpbf programme in banking is an endeavour of the nibm to ‘ catch them young ’ and create the bankers of tomorrow - a set of new generation managers for a new generation of banks. building up an organizational architecture that generates intellectual capital has been a huge challenge for banks and financial institutions. it is even more so today, when we are undergoing a period of the most rapid acceleration of what is alluded to as ‘ creative destruction ’ in the history of the financial sector. in the process of creative destruction, new constructs emerge. it is here that ‘ new generation ’ managers may have a role more demanding than that of the managers of yesteryears. a role which calls for more than just ‘ probity and prudence ’ which characterized the banker of yesteryears and increasingly focuses on managing ‘ competing imperatives ’. what do we mean by a new generation? how is the new generation different from the old? what has changed and is changing? and does it matter? in the context of time measurement, a generation refers commonly to a period of about 23 to 30 years, in which most humans become adults and have children. in another sense, the term generation refers to a common identity arising from common experience. thus the identity of ‘ new generation ’ managers would arise from the common experience of a changing world around us, a product of the wider historical context. for a better insight into this we take a long view of the indian banking. while historians can slice the past into countless slices, in terms of transformational change, there have been only a few inflexion points in post -

in return - on - equity strategy for years ahead and strategic plans may be required to execute this kind of approach. the trend from physical to virtual distribution perhaps the most visible and overt change in banking in the eyes of the public has been the trend for banks to move away from branch banking to electronic, anywhere - anytime distribution of financial services. if this has triggered the ‘ death of distance ’, the real time gross settlements ( rtgs ) system is threatening to consign time lags in settlement of financial transactions to history. in reality, delivery systems like atms, on - line banking and ‘ phone banking are a continuum of options from which the consumer selects. consumers select the delivery system that is right for them. in other words, distribution differentiates a bank when it sets up a delivery system that attracts certain customers. distribution is the new way to segment consumer markets and the transition of distribution systems is in fact emerging as an essential part of bank repositioning strategy. the trend from fragmentation to consolidation the forces of change today are favouring larger entities which bring mergers and acquisitions squarely into the strategic decision making of the banking sector. we are slowly moving from a regime of ‘ a large number of small banks ’ to ‘ a small number of large banks ’. every bank will of course, depending on its strategy, have to migrate to its best position in this new structure. picking a market position and transitioning to it is one of the most significant strategic decisions a bank must make. all types of entities can be highly profitable if they transition to the right market position and right cost structure to execute the strategy. the trend from data to information to knowledge perhaps the most talked about, yet least understood, transition ahead is in the area of information technology and information application. distribution and processing technology transitions are keys to the shift to virtual banking which is prompted by the desire to have low cost operations. but technology - driven information transformation is at the center of the even more important management, marketing, and risk transitions that banks must make. information is only valuable if it can be put to work and used for decision tools such as programmed trading, target marketing, predictive credit modeling and scoring, amongst others. most new financial services are in fact based on technology creating ways to do them. the transition from an old world of data processing and information management to a new world in which knowledge is being put to work on competitive advantage will be a major strategic preoccupation in the years ahead.