The Current State of Indian Investment BankingJuly 27, 2019
Investment banking in India has always been a career choice for most aspirants with a head for numbers and financial skills. The pay packets are handsome and work hours grueling and challenging. Besides, IB offers a range of services like asset management, restructuring, acquisition and merger deals, securities trading, custodian services, syndication, corporate finance, and capital markets services.
The presence of many multinationals like JP Morgan, JM Financial, Morgan Stanley, Merrill Lynch, Citigroup, BNP Paribas, Credit Suisse, Lehman Brothers and Goldman Sachs among the foreign-based firms and local domestic players like Veda Corp, Ripple Wave, MAPE, Cogence Advisors, Equirius Capital, and P2P are giving the big banks a run for their money in the boutique banking sector. The demand for personnel is way higher than the supply of trained personnel with training institutes like Imarticus Learning ably contributing to the producing wholesome and trained investment bankers.
Investment banking in India has come of age and faces several challenges in the current Indian scenario. Let us take a quick peek into these top challenges and factors.
1. Financial Regulations: Banks trying to meet the IFRS 9 requirements are driving business behavior and changing financial models. The technologies linked to leveraging data and appropriate models add to the pressures of the Basel III norms where the foci are core liquidity in balance sheets, raising wholesale long-term funding, reducing short-term lending and leveraging the complex financial models.
2. Scare capital: Product profitability and ROE have been transformed by the Basel-3 requirements. Many non-productive long-dated transactions, structured derivatives, and portfolios are being shunted to non-core business areas. The focus is on the exchanged and commoditized OTC products redefining the management of capital and profit margins.
3. Transformation costs and suboptimal ROE: Investment banks being asked to update their technologies face huge “transformational” costs and perhaps a mere 5-6 banks may survive the regulations, governmental policy and infrastructure changes due to compliance and regulation measures.
4. Cross-selling in boutique banks: Capital returns are now more dependent on effectively growing the customer base with such products in a bid to stay in the race for returns and edge in the market. Banks now focus on customer service leveraging their database and retaining customers through effective product upselling.
5. Competition from Fintech companies: The new startups which are effectively low-personnel firms have created a disrupt. Blockchains are being effective in cross-border lending activity and the African financial services market is being receptive to FinTech and financial inclusion opening the flood gates for the disruption of end-to-end services or new-age banking.
6. Legacy systems challenged: Most of the physical infrastructure of banks are outdated and inflexible in a rapidly transitioning digital age threatening the survival chances of the smaller banks.
7. Data optimization: The complex reporting standards and regulations demand better compliance in reporting, risk granularity, timeliness and accuracy in financial reports and predictions.
8. Norms for client on-boarding: The unique issues in practicing adherence to KYC and AML procedures include rising compliance costs, higher capital requirements, changes in the business model, and retaining clients across geographical frontiers.
9. Disruption: A sharp decrease in margins, decreased market share, decreasing foreign exchange, changes in banking services and challenges to traditional business practices are all good reasons for a disrupt of the financial markets.
10. Lenders in the market place: To prevent newer financial bubbles in an environment beleaguered with low-interest rates the consumer debt securitization of institutional investors looking to match the challenges in fundraising will undergo greater disclosure and transparency measures, as 90 percent of their fees earned is being invested in the new-loans segment.
11. Cyber Security: To counter digital theft and the hacker vulnerability of banks the EBA to stress test and “two-factor” authentication in Swift transactions will be implemented for over 11,000 members and 6trillion USD daily transactions.
12. Regtech: Adherence to the BCBS 239 will soon be mandatory and involves a huge investment cost in comparison to just changing the ‘principal’ set.
While the challenges are many and the IB sector is fast evolving one can hardly ignore a large number of very lucrative careers it opens up. Doing an investment banking course at Imarticus Learning is an excellent way of getting familiar with such changes and ensuring rapid career progression. Why not start today with any of the large numbers of courses Imarticus offers?