Subir Gokarn,deputy governor of the Reserve Bank of India (RBI) on Saturday cautioned banks saying that the banking sector is working in a risk-prone environment and the turbulence in the market is unlikely to be over in the next two years.
The deputy governot was speaking at a conference on the emerging macro-economic environment and its impact on bank competitiveness here.
Gokarn said that banks would have to face severe challenges in the current environment and would have to create new avenues of investment to run their operations profitably.
After 2008 it has been realised that there is a global financial system. The global shock gets transmitted and risks have globalised, Gokarn said.
He stressed the importance of banks maintaining a good proportion of liquid assets and for profitable business measures such as widening the scope of the know your customer (KYC) requirement: The scope of the KYC should be broadened as a business proposition. Rather than simply knowing the customers address,age and other details the banks should know the financial requirements of the customer.
The deputy governor also said that banks have a challenge in meeting the requirements of service industry after its increasing share in the gross domestic product (GDP).
Traditionally banks are aligned to manufacturing sector. The lending to the services sector is difficult because it also involves collateral which is intangible, he said and added that adapting to the business of providing loan to the service sector is important because of its contribution to the global and national GDP.
Gokarn also added that the emergence of specialised financial institutions like venture capital firms and different financial needs of people as per their age are other challenges that banks need to address. Predominantly India is a young population,but there is also a good number of senior citizens and financial requirements for both are different, he said.