The start of the final decade also began India's agonisingly slow transformation of the banking sector. At first the transformation merely included increased competition and a recognition of consumers interests. Banks have begun to realise that this is obviously not enough.

The transformation has to be of such depth that the banks should not be made responsive merely to the needs of the consumer but to the market for their products and services and to the opportunities thrown up by the rapid changes in technology. The events at the close of the 90s has defined what banking in India will look like in the networked world of the 21st century.

Banking in the next century will initially be marked by a reform of the public sector banks and eventually a complete reversal of the effects of the government's policy of bank nationalisation. This is likely to be thoroughly implemented within the first 10 years of the next century.

The major impact will be that of a change in public sector bank ownership, which can lead to a re-orientation of the sector. The realisation has already dawned that size alone is not important; nimble footed organisations are in; flat-footed giants relying on size are out.

This transformation into a lean, fit and fast moving organisation will have to characterise the future functioning of today's PSU banks. Those banks that are unable to shed flab, either of assets or human resources, will sink soon. The ones that are able to shed flab, but are unable to change the way they think or function are also likely to dissolve or be broken up.

There are other definite trends that could emerge from the likely churning in the banking sector. Mergers and acquisitions will be the norm more than the exceptional activity. Banks will be measured by their desirability to their competitors and banks will seek complementary strengths in prospective partners. So far there has been a bare minimum of activity in this aspect.

But with little prospect of improvement in spreads anytime in the future banks will be unable to finance growth through internal accruals, and will look to equity swaps or stock payments to finance balance sheet growth. And proliferation of competition will ensure that the time available within which banks will have to effect the change will be crunched.

But in a significant departure from anything that has happened in the past; banks will be looking beyond other banks as takeover candidates. The possible list of acquisitions will include firms from other sectors that banks see as giving them a competitive edge. Banks will be taking over information technology firms, firms with a specialisation in internet tools, as well as firms that can offer a global reach to their services and products. The reverse could also happen.

Technology costs (development, replacement and upgrades) will come to dominate the operating cost of a banking business replacing personnel cost and banks will have to seek ways to minimise this. The shift to the internet will cater largely to the cream of consumers; the need to service the remaining consumers will change the business into a high volume low margin business.

The upheaval will lead to a rapid growth of some banks. And growth will be reserved to those that make the switch to a virtual world and to internet banking. Already some banks have begun to make that transformation; but other organisations too will not be able to ignore the potential or the threat of internet banking.

The melting of cross-border restrictions on the functioning of banks will bring in competition from outside the country as well as well as sharpening the competition within. The free movement of financial assets, which is inevitable given the general mood and direction in which national financial policy is moving, will enable persons domiciled in India to avail of the best or cheapest global banking service.

There will be a growing challenge to the banking sector from other financial products, such as mutual funds. The effects are already showing. Resources will move away from the banking sector and into other financial products. As the influence of banking intermediation will in all likelihood be faced with a decline, one consequence will be that the benefits of sensible regulations that govern mutual funds will be extended to banks as well. The myopic regulations that currently hold back initiative will give way to a more proactive policy and more importantly to operational freedom.