Money & Banking
Building a Better India – Part 10: Restructuring banking system

Small borrowers immediately have their collaterals confiscated on default, but big industrial borrowers don't seem to suffer the same fate

The state of India's banking system does not garner as much attention as it should. With our layers upon layers of public sector banks and lending practices, our banking system is heading into troubled waters, if something drastic is not done soon.

Consolidation of public sector banks

All 26 public sector banks including State Bank of India (SBI) and it’s subsidiaries and associates should be merged and consolidated into 6 Banks as under:-

  A.   Central India Bank Ltd. 
  B.   North India Bank Ltd.

  C.   South India Bank Ltd. 
  D.  West India Bank Ltd.

  E.   East India Bank Ltd.       
  F.  North Eastern India Bank Ltd.

The initial cost of such consolidation will pay back handsomely in no time, in terms of better efficiency, lesser operational costs and scale of operations besides other benefits.

RBI's core functions:

Reserve Bank of India (RBI) has to perform multiple and numerous functions single handily and is extremely overburdened despite having one full time Governor and four Deputy Governors.

It may be better if some of its following secondary functions are devolved upon a separate banking & financial regulatory authority.

a. Regulation and control of regional rural banks.

b. Co-operative rural banks.

c. Regulation and control of chit fund and Nidhi companies, money circulating and mobilising schemes.

d. Regulation of micro finance companies and gold finance companies.

e. Regulation and control of non banking finance companies etc.

Massive irregularities in disbursement of loans by PSU banks

Financial Express reported in March that for every rupee lent by banks in India, 13 paise have turned into bad loans. No strict actions seem to be forthcoming for the known defaulters or the bankers. Especially considering that small borrowers immediately have their collaterals confiscated on default, but big industrial borrowers don't seem to suffer the same fate.

The various and scattered laws on banks and financial institutions as under should be consolidated in to two laws namely INDIAN BANKING ACT  and  INDIAN FINANCIAL INSTITUITIONS ACT, with adequate and effective provisions, and strict rules for quick recovery of bad or sticky loans.

1. Banker’s books evidence act 1891

2. Agriculturist loans act 1884

3. Banking regulation act 1949
4. IDBI bank act 1964

5. State bank of INDIA act 1955    
6. SBI (subsidiary banks) act 1

7. State bank of Hyderabad act 195 
8. State associated banks act 1

9. Exim bank act 1981       
10. National housing bank act

11. Regional rural banks act 1976    
12. SIDBI Act 198

13. Banking Companies acquisition and transfer act 1970/1980

14. State financial corporation act 1951
15. Unit trust of INDIA act

16. Recovery of Debts due to Banks & Financial Institution Act, 1993

17. Securitization and Reconstruction of financial Assets and Enforcement rules 2002

The nexus between bankers and businessmen needs to be broken or atleast addressed, Moneylife has written before about how rising NPAs are affecting the solvency of India's prestigious public sector banks. For a more detailed view on this specific issue please read our previous article here.

You may also want to read...
Building a Better India-Part1: How to create a smaller and smarter government
Building a Better India-Part2: Transforming political landscape
Building a Better India – Part 3: Bringing systemic changes in constitutional bodies
Building a Better India – Part 4: Identifying tax issues
Building a Better India – Part 5: Bringing tax reforms

Building a Better India – Part 6: Fast track clearances

Building a Better India – Part 7: Managing India's Deficit

Building a Better India – Part 8: Boosting Coal Production

Building a Better India – Part 9: Boosting Hospitality and Tourism

(Kolkata-based Dalbir Chhibbar practised as a CA till 1990 and later started his own buinsess)



Shreekanth Prabhu

2 years ago

I feel Banks should be divided as per role. Some banks may cater only to large number of low-income customers. Some others cater to salaried class. Yet another to businesses. All the lending to high risk/project/infrastructure should be done by an investment bank.

Customer facing banks in turn should lend to Investment bank. There should also be a bank that is focused on Government lending and finances. It may also be good to encourage peer-to-peer lending, social banking and crowd lending of unsecured loans, thereby expanding debt markets, reduce role of money lenders. This may also reduce pressure on PSBs to lend to public sector. All high risk loans should be insured, thereby a single agency can do a better assessment of risks. A businessman habitually/willfully defaults will have to pay an unaffordable risk premium. Interest incomes of retail customers, pensioners should not be taxed. Even this may apply to businesses. Banks should pay a flat 1% interest as service tax for the entire corpus of deposits held by them to the Government.


Shreekanth Prabhu

In Reply to Shreekanth Prabhu 2 years ago

I meant priority sector in place of public sector.

Why can't Railways attempt to generate its own solar power?

Typically, a roof top 1 kV system or solar power panel would cost Rs1 lakh and the government provides certain subsidy for its citizens and industries.  Railways would come under essential services and it possibly can get a better deal from the government

It may be recalled that the Railway's interim budget for United Progressive Alliance (UPA) government was presented by Mallikarjun Kharge, which was not implemented, and which has proposed certain unavoidable hikes in fares. DV Sadanand Gowda, the new Railway Minister has now the difficult choice of modifying the proposals made earlier and also include his own vision of what Railways ought to do in the next five years. His plans are expected to be reflected in his budget that is likely to be presented early next month.


According to the press reports, Sadanand Gowda wants to pursue issues of dedicated freight corridors, dedicated coal circuits and increased and better facilities for passengers. But for doing all these, he needs to secure funds, some of which he may seek from the Coal Ministry. Or better still, he could seek to have joint ventures with the Coal India Ltd, which is flush with funds!


Meanwhile, he has no choice but to increase the revenues by higher fares and increased freight charges.


In the last fiscal, fuel costs have gone up by about 30% due to increased cost of diesel, lower indigenous coal supply and inadequate use of existing resources. In fact, in the last 60 years, Gowda has stated, Railways has not modernised, and his plans are likely to be revealed when presenting his budget.


The Indian Railways network covers 65,000kms route; carries 20 million passengers and 2.9 million tonnes of cargo every day. Their own electricity bill is expected to touch Rs10,880 crore this fiscal and the total fuel cost has shot up to Rs 28,471 crore. About 37% of the 65,000 kms route has now been electrified, and, as of now the Power Ministry has clarified that the Railways have a "deemed licensee status", to transmit, distribute and trade power. Sadanand Gowda can buy power directly from surplus power producing states like MP, Gujarat, Odisha, Chhatisgarh and Haryana, at a slightly cheaper price than from discoms!


Is there anything else that the new minister Sadanand Gowda can do that can have far reaching implications for the Railways? Yes, here are some ideas that he can have his Research and Development (R&D) Team to work on. This is based on the press reports that typically a roof top 1kV system (solar power panel) would cost Rs1 lakh and the government provides certain subsidy for its citizens and industries. Railways would come under essential services and it possibly can get a better deal from the government. So, Sadanand Gowda can direct his team to:


- carry out a study and seek a manufacturer to design a roof-top solar panel (s) for passenger coaches


- design a modified version that can be fixed on closed luggage vans


- design a third version that would be fitted on the top of open wagons, such as those that carry coal, iron ore etc


- design the system to collect the solar power to be stored in a centralized battery, which could be removed at the end of the day and replaced by a new one; those fully charged batteries may be connected to a power grid for consumption


- and or design the panels in such a way that the power is routed to a central battery system, possibly installed in a bogey, that can be disconnected at given points enroute and replaced by a new bogey to collect power the next day when the railways move!


We must remember that all our moving railway passenger cars, luggage and open wagons could be utilised to generate solar power, as they are on the move, in the open, during the day. It is this solar power that we need to tap!


Or is this a pipe dream? The writer feels that solar power engineers could come out with some such feasibility, it would make a huge difference to the power starved country. Such an idea can be used on all moving vehicles like buses, tourist coaches etc


Sadanand Gowda would have no problem in getting such a mandate to experiment from the Prime Minister himself, who in Gujarat implemented the setting up of solar panels on the Narmada branch canal near Chandrasan village of Kadi taluka in Mehsana district.


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



Dr Anantha K Ramdas

2 years ago

Yes I agree with our urgent need to stop ticketless travel and our own responsibility is not letting this happen, if we are a fare paying passenger who finds such illegal entrants in our compartments. It is our duty to raise the issue with TTE and if the law were to give him strong support, he should have some inspecting assistants in "mufti" and take the radical step of stopping the train and dropping such miscreants in the middle of nowhere!

This may be a very strong step but such a drastic action is required to stop this nuisance. Similarly anyone found tampering with railway property should also be dealt with in similar strong manner.

Claiming to be a citizen of a democratic country with "rights" just won't do - we have as many "duties" to perform too....

The fact is very few people take the trouble to call in the authorities and point out the culprits who are a menace to the society at large.

Sorry, it is our fault if we do not take our responsibilities seriously.

Achin Jain

2 years ago

We should try to be design better locomotives (energy efficient) and normal passenger wagons to save fuel cost!

Try to be more energy efficient along with energy producing source!


2 years ago

Good idea .

yogesh mahla

2 years ago

Dear Sir,

With due regards to your experience and thoughts on the topic, i would like to submit that we should consider first plugging the holes which are draining far more resources from railways. They include theft,corruption,accidents( both cost to equipments and then payment to the people suffered , as Indian railways doesn't buy insurance),people travelling without tickets are to name a few. Idea of using solar power is indeed a good one but given the circumstances it is bound to take lot of time. On top of that it will also cost money, so the trade off has to be taken into account.

Sreenivas Ananthakrihna

2 years ago

Great idea, we probably need to deal with issues like vandalising. I think rather than doing our own R&D which might take several years, it might be faster to strike a partnership with a company like Solar City based out of US who are quite passionate to bring solar power to the masses.

Assisting Those Who Cannot Look after Themselves

India has an acute shortage of elder care and assisted living facilities for senior citizens. Here is an initiative to bridge this gap.

Four years ago (2010), we wrote about Silver Innings Foundation and its not-for-profit initiatives to help senior citizens on a variety of issues. A lot has happened since. Sailesh Mishra has set up A1 Shehanjali, the social enterprise of Silver Innings (now a registered trademark), an assisted living elder care home for people suffering from dementia, Alzheimer’s or Parkinson’s and the very old.

It is a tough job and the soft spoken and affable Mr Mishra, founder of Silver Innings, a social enterprise, and Silver Innings Foundation, an NGO, is the first to admit it. “It isn’t as easy as advising people about how to care for elders; all you need to keep in mind is to make it a home with a heart,” he says.

Mr Mishra created this home after six years of running Silver Innings which helps and guides senior citizens on all aspects of their lives. A1 Snehanjali finally started in August 2013. Snehanjali, means a gift of affection and this is what he tries to inculcate in the care of elderly residents at its scenic Nalasopara (west) care-home, 50km from Mumbai. “At A1 Snehanjali, our mission is to help elders and their family members to overcome the challenges of ageing and show them the way to transform lives to mitigate loneliness, helplessness and boredom and live with dignity in their silver years.”

The home admits those above 55 suffering from dementia, Alzheimer’s, Parkinson’s and those who require assistance but NOT constant medical intervention provided by nursing homes. A1 Snehanjali follows a lengthy admission process to ensure that elders who come to their home are not dumped. A1 Snehanjali’s counsellors visit the homes of the elderly to find out more about them and their family situation before admission. According to Mr Mishra, 36 admissions were rejected on suspicion that they were cases of dumped, third stage of Alzheimer’s and who required nursing care. A1 Snehanjali insists on monthly visits by the resident’s family after admission. “We do not want to encourage people to be a part of our home if they do not really require it,” he says. At the moment, A1 Snehanjali has five residents.

It provides facilities like provision of nutritious food, medication management, bathing and dressing, incontinence care, weekly medical check-up and transportation for doctor visits, three vegetarian meals a day, laundry services, TV and music and 24x7 access to the attending staff.

What does it cost to stay at A1 Snehanjili? There is a deposit of Rs3 lakh, including a non-refundable donation of Rs50,000 to Silver Innings Foundation (NGO); interest-free refundable security deposits of Rs1.5 lakh and medical emergency fund of Rs1lakh payable to Silver Innings (Social Enterprise). The monthly fees depends on the level of care required. The basic fee is Rs30,000/pm including food. It does not include medicines, toiletries, diapers and special medical treatment.

It also offers a ‘respite stay’ of one to three months on payment of a deposit and costs.
“We live in a society which has replaced nani (maternal grandmother) with NANNY. We need to empower society to Engage the ‘Age’ing by showing the youth a mirror of their own future, says Mr Mishra. He hopes to achieve this by encouraging young people to volunteer, act as change-makers and to make donations to help it function smoothly.

Donations to the Silver Innings Foundation are exempt under Section 80-G of the Income Tax Act.

A1 Snehanjali
A1 SNEHANJALI Elder Care Home
Marciana Bungalow, D’silva Nagar, Nala Village, Nalasopara West,  Taluka Vasai, Dist. Thane, Maharashtra - 401203
Contact No : 91+9323919145
Email Id: [email protected]; [email protected]


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