The chairman and manager of Bhiwandi-based Nagrik Sahakari Bank got passbooks printed but never paid the money to the printer and instead used it for their benefits
While going ahead with the processes and procedures for allowing new banks, the RBI should, simultaneously, reopen the banking reforms agenda. If this is not done corporates and small borrowers will continue to disbelieve the banking system and find out escape roots for deploying their surpluses and meeting their financial needs
Perhaps because of a sense of futility in the present coalition scenario, the Government of India (GOI) and the Reserve Bank of India (RBI), in the recent past, have been making sub-sector-specific or issue-based observations on financial sector reforms. Reforms, to be successful, need a holistic treatment. There appears to be a studied silence on structural reforms in the financial sector, except for passing references to additional banking licenses to private players or changes in regulatory environment for NBFCs. These are more with the interests of certain stakeholders in view than the overall health of the financial sector.
The RBI governor’s recent observation about GOI’s liquidity problems for allowing further expansion of public sector banks adds to the confusion. If the financial sector has to rise to the expectations in regard to credit delivery, especially to agriculture and service sectors, the banking infrastructure will need structural reforms, skill development and a change in outlook on HRD-related issues.
Public sector banks continue to shoulder more than their real share of the burden of lending to traditional priority sector which includes agriculture and small borrowers. Even if they come into being, the proposed additional private sector banks may not be immediately in a position to support the critical areas which are neglected by private sector banks to a large extent, as of now.
In this context, any further delay in comprehensive financial sector reforms, for political reasons (“compulsions of coalition politics”, government not having adequate dependable numbers in both the Houses), may have long-term adverse impact on the country’s economic development. Perhaps, this is the right time for the finance minister to open a debate for a consensus in the matter.
Here one has to admit that it is quite natural that as a regulatory body responsible for the health of the financial sector, RBI’s concerns go farther from just the net worth of the promoter or his professional capability to run a bank. RBI’s intention to regularize and ratify the parallel banks which can conform to regulatory norms and rehabilitate some RRBs (regional rural banks) which may have manpower and infrastructure in place but may be finding it difficult to perform for want of leadership as also the central bank’s desire to keep the business of banking trustworthy is evident from the cautious approach of RBI in regard to new bank licenses despite perceivable pressure from industry and to some extent from GOI.
Even when the RBI came out with the discussion paper on the issue of new bank licenses, it was known that the idea of setting up some more private sector banks was loaded with compulsions much beyond the government’s stated intention to give a greater role for private sector in banking to promote financial inclusion and reduce government’s financial commitments for running banks. The role so far played by the private sector banks which came into being post-LPG (Liberalisation-Privatisation-Globalisation), which are driven by profit-motive, in lending to traditional priority sector, penetration to semi-urban and rural areas and financial inclusion has not been very impressive.
It has to be said to the credit of RBI that the central bank effectively brought to the fore the real issues and concerns of all stakeholders in the financial sector, about new banking licenses. In the present scenario, the central bank should take initiative to reopen the banking reforms agenda which was kept in the backburner after allowing some banks in the private sector during the introductory years of financial sector reforms.
In 1991, the Committee on Financial System (Narasimham Committee) visualized a structure for Indian banking system with “three or four large banks that could become international in character; eight-10 banks with a network of branches throughout the country engaged in ‘universal banking’; local banks whose operations would be generally confined to a specific region and rural banks (including RRBs) whose operations would be confined to the rural areas and whose business would be predominantly engaged in financing of agriculture and allied activities”. As more than two decades have passed, though there may be reason to re-evaluate a suitable model in the present context, the relevance of structural reforms has not lost validity.
Although the recommendations of the Narasimham Committee were realistic and had kept in view the long-term credit needs and the inability of large banks to reach out to un-banked and under-banked rural India, for various reasons including compulsions of coalition politics, RBI and the Centre did not take a serious look at reorganization of banking infrastructure. Banking services, in India evolved through a multi-agency system and through different limbs, supported the credit needs of small borrowers to a great extent.
The need of the hour is to ensure that all players in the business of banking in the formal sector, namely, commercial banks, cooperatives and RRBs remain healthy and perform their assigned roles effectively and the informal sector, through which banks and NBFCs support microfinance needs, is also brought under financial discipline through regulatory arms such as RBI, NABARD and state governments.
To read about other initiatives of RBI, click here.
The present scenario is partly the result of GOI and RBI keeping the residual banking sector reforms in the backburner after allowing some banks in the private sector in the initial days of reforms. The debate in the media during the last couple of years about “new private sector bank licenses” shows that a bank or a financial institution is a different animal to different persons, depending on the person’s financial status and banking needs.
At this delayed hour at least, a total view of banking needs of agriculture, industries and service/export sectors and institutional infrastructure for meeting them may have to be taken by the central bank. If this is not done, corporates at the national level and small borrowers at the ground level will continue to bypass the banking system.
The RBI has been consistently playing a proactive role in institution-building in the financial sector, since early 1950s. SBI, IDBI, NABARD and new private sector banks are some examples of the central bank’s success stories in institution-building. Despite its efforts, along with GOI, to improve the health of the rural financial infrastructure by rehabilitation of existing cooperatives, trying experiments like Regional Rural Banks and Local Area Banks and promoting financial inclusion, adequate and cost-effective institutional credit is yet to arrive in rural India. The proposed new private banks will initially be able to focus on large investors and borrowers only, which will definitely have an impact on the sources and uses of funds available to banks and financial institutions. In the circumstances, the central bank should, while going ahead with the processes and procedures for allowing new banks, simultaneously, reopen the banking reforms agenda.
The diversions so far provided for bigger banks to dilute their priority sector and rural lending responsibilities should be reviewed with a view to ensure that deposit-mobilization gets tied up to the social responsibility of meeting the genuine credit needs of all sectors considered relevant for overall economic development. If this is not done corporates at the national level and small borrowers at the ground level will continue to disbelieve the banking system and find out escape roots for deploying their surpluses and meeting their financial needs.
The public sector-private sector divide in meeting social responsibilities also needs a closer look. If this is not done corporates at the national level and small borrowers at the ground level will continue to bypass the banking system.
Overlap of functions, large-scale outsourcing of activities and challenges from business houses who are telling that if you will object to owning a bank, the same objective will be achieved through an NBFC or some other arm or instrument which can achieve desired objectives and reluctance of banks in the private sector to directly penetrate below the creamy layer of the large majority which is waiting for “financial inclusion” are all major areas of concern needing immediate response from RBI.
GOI, at this late stage, should think in terms of (a) encouraging individual banks to do business in functional and geographic areas in which they are better equipped and have competitive advantage in terms of outreach (b) redefine the role of various categories of banks considering their background, skills and capabilities and (c) involving the regulator, namely RBI, for conveying GOI’s expectations, so that multiplicity of guidances is avoided. A comprehensive review of the banking needs and institutional infrastructure for meeting them with focus on how best the existing banks can be guided to meet the genuine credit needs of various sectors of clientele is the need of the hour.
Read other articles by MG Warrier, here.
(The writer is a former general manager of RBI. He can be contacted at [email protected])
Will the aviation minister pay attention to how Air India continues to treat passengers even when taxpayers are set to provide a massive bailout of Rs40,000 crore to the ailing carrier? Here is a harrowing experience of Padma Bhushan Prof Hegde’s trip from Chandigarh to Bengaluru
It was to be a bad day for me on the 21st October when I planned to travel from Chandigarh to Bangalore for a commitment there the following day. I was in Ludhiana for a national conference and had to reach the Chandigarh airport well in time for my Maharaja’s flight from there via Delhi to Bangalore. The roads were not too friendly in that part of the country but the organisers of the meet were too good to be true. When I see their faces all my tiredness used to vanish. The driver of my cab, a bearded Sardar, was a real friend indeed. He drove so carefully so that I could even sleep on those bumpy roads.
Trouble, though, awaited me in the airport. Air-India’s commercial partner, Optiontown.com, kept sending me messages for a 75% reduced business class ticket which I had to buy online. A computer illiterate that I am, it took me hours to do just that, having paid the charges online again with considerable distress. When I presented myself at the Air-India's airport office the wise people there laughed at me. They told me that there is no such agency in the service of their Maharaja. They implied that I must have been taken for ride by some internet crooks.
Confused and dismayed at that information I offered to buy the upgrade by paying them money which luckily was less than what the on line agency had charged me! Little did I realise that I was in for more surprises. Before losing complete hope of my money paid online I called my good friend, an old hand at Air India in Mangalore, Sunil Bhat, for more details. He not only told me that the scheme does exist and the partner company is an internationally reputed one.
He told me that I could get my full money refund minus their Rs100 service charge. Now comes the second part of Maharaja’s curse. Having bought the business class ticket at the office, I went to the counter for my boarding pass where was told that I will get only my Chandigarh- Delhi boarding pass but not the on-going one to Bangalore as they did not have a computer link to Delhi airport? The gap between the two flight at Delhi airport was less than an hour and it is a human impossibility to go the booking counters in Delhi's Indira Gandhi airport where the flight landings and the office counters are miles apart, that too in that short time.
I was in a special quandary, having thus paid twice for my upgrade I was with a ticket in hand but no boarding pass. Seeing my pitiable state the station manager, Mr Negi, if I remember right, a good human being told me that he would send a message to Delhi to help me with my boarding pass at the transit desk at the arrivals. The officer in charge at the office was too rude and told me that people like me do not know the rules and then bother them unnecessarily as such a partner like optiontown.com did not even exist. He showed me his papers to say that only cash payment to them would get me the upgrade voucher. Thank heavens, the flight arrived on time and departed on time and the journey took less than the scheduled time leaving me with good hour gap between flights at the Delhi airport.
The Delhi airport transit counter experience was simply out of this world. There were six young and not-so-young big-bellied men standing there on the inside with me alone on the outer side of the counter. Despite that they took quite some time to look at me as they were engaged in an animated personal discussion. When I told them my problems, one of them, their senior may be, told me that I have to get out and get my boarding pass at the booking counters outside which was an impossibility with hardly any time left for reporting at the gate. My pleadings with him went waste as he stood his ground that he could not do anything as his computer would not tell him if there is a vacant seat in the business class or not. He went to the extent of telling me that people like me who want to take advantage of cheaper fares must wait for the last minute as the airline might prefer full fare paying clients. Rightly so, but I was not naïve to believe him when the airline’s business class is going vacant and the seats are offered on discount, who, in his right mind, would pay four times more for a full fare ticket? This is very curious as when I finally got into the plane I saw only three people in the business class having ten seats—seven still empty. One of them was a Khadi-clad MP who travels at our cost and one more passenger in addition to myself with seven empty seats.
Resigned to my fate, as I do not believe in fighting raising my own blood pressure, I went towards the gate. I had to pass through another security, though. There I saw another transit counter with one young girl sitting doing nothing. I went to her with my story. She had the patience to listen to me and took pity on me. She called her boss who, after much cajoling, told here that my upgrade voucher was true and she could give me the last seat in the business class. Thank God, I got my boarding pass at long last.
Before I forget I must give you the full woes of the staff in Chandigarh airport. They do not have computer links to other parts of the country and cannot issue boarding passes to on-going journeys. They do not have a lounge for business class passengers. Their pleas fell on deaf ears. While there are flights of private airlines going to Chennai, Bangalore and other major cities via Delhi, Air India’s bosses refused to give a direct flight even thong the commercial value of these sectors is excellent. The benefit goes to the private airlines.
Chandigarh is commercially a very profitable airport for airlines but the Maharaja’s bosses want to help the private airlines in all those commercially viable routes. It was Ambrose Bierce who called politics strife of interests masquerading as a contest of principles, and means of using public affairs for private advantage. May be the concerned people have vested interest in some private airlines.
I have been flying Air India from the 1960s. During the early days of my experience with them, when JRD Tata was the chairman, with half a dozen long-haul aircrafts like the Boeing 707s, they were adjudged the best in the world. Today, they are anything but the worst, thanks to political brinkmanship with hundreds of aircraft bought under suspicious circumstances. Many of our netas travel in private airlines even when they have an Air India flight available for better comforts. I have a good story to tell you.
I was in New York some years ago and was to take the Air India flight back home on a particular day. I had to reach the airport very early as the new security problems had just begun then. We all waited for the departure time at 7.30 pm only to be told that the flight is delayed indefinitely as the aircraft did not arrive from London!
Another long wait followed without much information as to what had happened to the aircraft from London which incidentally arrived that morning at London from Bombay (those days). At 2 am we were told that the aircraft will arrive the following evening and we will have to wait till then. Obviously people started fighting with the hapless staff at the airport with their bosses sleeping in the cool comfort of New York City. Finally they agreed to give us some hotels. That is where I met a good man in Indian politics, Late MP Prakash and his wife. He was not a minister then. They were new to New York for sightseeing and took my assistance to locate the hotel on our own. We became very good friends ever since till he died recently. Very good human being that he was I pray for his soul.
Later we were to learn that the then prime minister who was in London for a meeting thought of going to Africa for a holiday with his wife. He took the London New York aircraft to Kenya. That was why our flight was cancelled without any prior knowledge of Air India staff in New York! Lots of sick people and elderly ladies were all left stranded in the airport for a full 24 hours.
I was in London a couple of months ago. I met a very nice senior officer of Air India in a meeting where I delivered a lecture. He came to see me after that in my hotel room as he wanted to learn more about his health etc. He was narrating his bad experience recently in London. He was in charge of the flight to Mumbai from London on a particular afternoon at 13.30 hours. The aircraft was new and everything was getting ready when the then aviation minister, who was in London city, called the airport saying that he wanted to travel by the same flight to Mumbai. The staff reminded him that the flight was ready for departure but the minister’s PA curtly told them that they could delay the flight giving some reason.
Lo and behold! Within minutes the Bombay head office was on the line telling this gentleman that he should open the engine of the plane and declare that there is a fault there. He pleaded that opening a new engine might create problems but he was asked to follow the HO instructions. The engine was opened! The minister came at 5 PM. The flight had to start but the engine would not start! There really developed a new fault.
Learning that the aircraft really cannot take off, the minister told the staff to get him a first class ticket on Jet Airways that was to leave in another hour or so. He continued to enjoy his food at the lounge and got on to the private airline and went to Mumbai. The problem for the passengers of the ill-fated aircraft was compounded by the lack of an air corridor for the flight from London to Mumbai for another four hours. See how our netas serve their motherland with diligence, dedication and determination. They need to be saluted. With the birth of a new breed called Kejriwal-Anna nexus does anyone think that this drama will change at all? If anyone thinks that it is going to be a cake-walk, s/he is in for a rude shock. Man, said Shakespeare, whether in a palace or pad, castle or cottage, is governed by the same emotions and passions. Late Indira Gandhi abolished our erstwhile real maharajas’ privy purse promised to them for acceding their states to the republic. In their place we now have a new breed of political maharajas for whom no rules apply.
Sooner they sell Air India to a private player the better for the tax payer. Today the poor citizens pay for the upkeep of this airline. In every so called democracy it is the poor who pay for their poverty with their lives, the story is the same with Air India. While there are some dedicated staff still left in that airline, most take life easy what with their job security they could' care less for the passengers and their problems. This country can only come out of the deep trench into which it has been thrust by our netas with the help of a new generation of Indians that follow the Indian culture of walking their talk.
Culture is what one does when no one looks at him/her. Let us pray for that day when India will regain her world supremacy, Air India included. JRD Tata must be turning in his grave indeed looking at the state of the airline which he nurtured with all his heart and strength.
Long live the Maharaja, his political troubles notwithstanding. Happy flying folks with Air India. I am only hoping that I will get my money back from www.optiontown.com sooner than later.
(Professor Dr BM Hegde, a Padma Bhushan awardee in 2010, is an MD, PhD, FRCP (London, Edinburgh, Glasgow & Dublin), FACC and FAMS. He is also Editor-in-Chief of the Journal of the Science of Healing Outcomes, Chairman of the State Health Society's Expert Committee, Govt of Bihar, Patna. He is former Vice Chancellor of Manipal University at Mangalore and former professor for Cardiology of the Middlesex Hospital Medical School, University of London. Prof Dr Hegde can be contacted at [email protected].)