The rise of China and India in economic terms has been meteoric but, while their global banking presence remains relatively minor today, global dominance in this sector, too, is inevitable.By Chris Skinner.

The dramatic rise of China and India has been stunning to witness, yet this is only the beginning. Economists forecast these economies will outstrip the US and Europe in terms of growth and GDP within the next decade.

If that is the case, surely Chinese and Indian banks will not be left out of the revival – although, surprisingly, the banks of Asia still languish far behind. The Banker’s Top 1000 listings in the past five years show the bulk of assets and profitability residing with European and US banks. India has only one bank ranked in the Top 200, while China has five.

This will change as the economies become more sophisticated, and capital and commerce flows are more closely linked. Examples of such sophistication are already at the fore, with many US and European banks pumping cash into China’s banks as the government deregulates the financial markets through to 2007. Illustrations include ING and the Bank of Beijing, and Merrill Lynch and Huaan Securities.

India is in offshore outsourcing partnership with banks around the globe, and is involved in joint ventures, such as that between Lloyds TSB and ICICI Bank to offer an India Banking Service in the UK.

So what will tomorrow’s Chinese and Indian banks do? China will gain significant leadership in deploying new banking technologies, while India will be leading the way in banking management methods and structures.

This is a logical conclusion to current trends. China is investing heavily in new technology developments, such as WiMAX, 4G and iPV6. As a result, its banks will enjoy massive innovation gains through their experimentation with new channels, products and services, well before US and European banks.

Meanwhile, India is learning about banking products and services through offshore centres that run everything from customer contact to investment markets research. It has more highly qualified students each year (three million) than any other nation. It also has youth on its side and so the number of skilled workers will increase in the forthcoming decades. Between a highly educated and youthful population and a services culture that truly understands the globalisation of skills and sourcing, India will be innovating fresh management cultures and operations as well as new ways of doing business onshore, nearshore and offshore.

Any bank that is not paying close attention to China’s technology and India’s management innovations is missing the future of banking. Chris Skinner is an independent financial commentator . (www.balatroltd.com)

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