Banking Needs New Direction
Monetary Policy breathed a fresh air and for once
customers felt that some comfort existed for them too. Post-liberalization
Banks went on investing in technology and realizing the costs of such
investments through various types of charges. Even after realizing the cost of
investment in technologies over the last two decades and over, it is time to
pass on the benefits to the customers in whose name and style they infused
technologies. Waiver of electronic transaction charges for a year at least to
start with, has been viewed as a big relief. ‘No Frills’ accounts norms also changed.
Though interest rate changes disappointed the depositors, borrowers expect some
rate reduction transmission soon.
Prudential norms underwent change giving comfort to
the banks and borrowers alike. Resolution process provided leeway for the
corporates running after Bankruptcy Courts to resolve their debt and start
production/services to their full capacities sooner than later. The present
environment of banking is transiting from dissatisfaction to hope for the
better. But the real challenge still remains: public sector banks realizing
their raison de ‘etre of their existence: emerging context requires that
banking is redefined to meet the specificities of farming, employment,
entrepreneurship, infrastructure, and international finance as distinct
entities. While retail banking, home loans, real estate and the failed
infrastructure loans held sway during the last two decades the change should be
in lending for agriculture, allied activities, MSME finance and segmentation of
retail sector loans to the needy.
PSBs heaving a sigh of relief over their bad debt
portfolio coming under control, should now be looking for new ways of doing
businesses. But do they? Huge disappointment, however, is in the increase in
bank frauds reaching >Rs.71500cr in 2018-19. Is technology facilitating
frauds coupled with inability of banks to supervise staff and control them? Cultivating
the technology to customers requires investment by banks in customer education,
both online and offline.
Indian economy targeting double digit growth ere long
has competing clientele bases in the current milieu of banking. Domain banking
has moved to high tech banking. Men at counters have now become slaves of the
machine instead of being masters.
Apex institutions like three and half decades’ old
NABARD and almost thirty-year old SIDBI are yet to deliver the intended
benefits to the sectors they are meant for. Major earnings of these
institutions come from treasury business. Multiple funds held with SIDBI are
yet to reach the micro and small enterprises. Both these institutions that have
wealth of knowledge in their human resources, need thorough revamp and
restructuring. Delaying the process would end up further wastage of huge
organizational resource.
Manufacturing MSMEs are in negative growth for almost decade
and half now. Several NBFCs focused on small business finance but the IL&FS
and consequent failure of mutual fund promises left disappointment. PSBs have
the option of exploiting the co-finance window but they are bogged by the
mindset of collateralized loans. It is here they need change. Interestingly,
one of the senior bureaucrats recently rued: ‘when did the banks fall in line
with the aspirations and goals of the government – whether DRI loans, IRDP
loans, SEEUY etc., until they were forced? Now is the time to look at the way
to culture the banks into new ways of thinking and acting. This can come of
only through change in governance and regulation.
With over 38% of the population still illiterate, Jan
Dhan and Mudra Yojana as instruments of financial inclusion Banks are yet to
treat them voluntarily favoured agenda. Institutional innovations like the
Small Finance Banks, Small Payment Banks, India Post and the likes as also the
MFIs have also proved inadequate to meet the needs of the present leave alone
the future banking needs of the population.
India’s future still lies in rural areas; agriculture
and allied activities and providing value addition to agriculture at the
doorstep of the farmer; weaning away unproductive labour from farm sector to
non-farm sector; revamping agriculture marketing with infusion of technology so
that price discovery takes place at the source of production and building new
skills and upscaling skills in farm sector with measurable outputs of such
investments. Government, owner of over 82 percent of banking, should drive the
sector towards this agenda.
The reach of banking should be tested in rural areas.
Several PSBs are winding up rural branches. Regional Rural Banks that are
supposed to cross-hold institutional risks with their principals and do social
banking are set to merge with their principals. Institutions thus created for
the rural areas will soon become extinct. The big question that RBI should
think is – will double digit growth target of the Indian economy possible
without mainstreaming rural banking efforts? Should there not be a rethinking
on maintaining balance between proximate physical banking and digital banking?
A committee of either RBI or GoI could look into this aspect and arrive at the
future course of action.
The whole incentive system in HR in Banks should move
towards such agenda. Selection of Managing Directors and Directors on the Board
should discerningly look at the perceptions of such persons with such agenda.
Kisan Bank for farmers, allied agriculture and
agriculture marketing; Udyog Mitra Bank for lending to micro and small
manufacturing enterprises and small business finance, Vanijya Bank for retail
banking, home, education and transport loans, Moulika Vitta Vitarana Bank (
revive the Development Finance institutions for lending to infrastructure)
would make banking portfolio banking with capacities to cross-hold inherent
risks of lending. GoI would do well to have brainstorming sessions on these
areas as the sector is trying to breath fresh air now.
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