Prime Minister Modi attended a retreat with India's top public sector bankers, we take a look at what came out of the two day event
Speaking at the bankers’ meet christened ‘Gyan Sangam’ at the National Institute of Bank Management at Pune on Saturday, Prime Minister Narendra Modi conveyed a his expectations from the banking sector. However, concrete steps to achieve the objectives put forth at the conclave are yet to be spelt out by the Government.
The Prime Minister (PM) said that the banking sector of a country mirrors its economic rise. Japan and China had banks in the top ten banks of the world during their economic rise. He therefore called upon the banking fraternity to establish banks here which rank among the top banks in the world.
Only one Indian bank figures among the 50 biggest banks of the world. SBI is ranked at 38, ICICI Bank is 99 and HDFC Bank 126, the second biggest among public sector banks (PSB) is Punjab National Bank, ranked at 189, followed by Bank of Baroda at 206.
There were signs that a decision to merge some of the weak public sector banks with strong ones would be taken at the meeting. The Financial Services Secretary Sri Hasmuch Adhia said after the meeting, that each bank’s board would decide on consolidation and if it was commercially viable, the Government would respect such a decision. This means consolidation of banks appears to have been put on the back burner for the present.
The most important statement made by the PM was that banks would be run professionally and there would be no interference. He even said that the Govt. had no vested interest and that PSBs can derive strength from this fact. He made a distinction between interference and intervention. He said he was against political interference, but supports political intervention in the interest of the people. Political intervention would enable the voice of the common man to reach such institutions to ensure accountability, which was essential he said. Let us hope all this is put into practice by the political class and thus provide the banks with autonomy to function without any fear or favour.
The PM also asked banks to develop dedicated teams to fight cybercrime. Though he did not elaborate on this subject, this is an area that calls for concerted action from all banks to ensure that customers of banks do not suffer for no fault of theirs. There is a need for the RBI to issue guidelines to limit the liability of banks’ customers in all internet frauds, which alone will create more confidence among the public to use technology in their day to day operations with banks.
Without specifying how to improve the performance of banks, the PM said that with 81% of branches and 77% of deposits, the net profits of PSBs should improve from current levels of 45%. PSBs however have been reeling under the burden of bourgeoning non-performing assets that have affected their profitability to a considerable extent. In fact, Moneylife Foundation has already submitted a memorandum last month to the Prime Minister giving suggestions on how to improve the functioning of public sector banks.
Unfortunately, neither the Govt. nor the RBI had any immediate solutions to fight the menace of large value NPAs, except to say that big defaulters need to be booked quickly.
There is a need to provide a systemic cure to ensure that such large defaulters do not take banks for a ride by legally empowering the banks to remove the willful defaulters/ promoters from management of such companies, which alone can help the banks to quickly come to grips with recalcitrant borrowers.
The PM in all earnestness exhorted the PSBs to be conscious of the directions in which the country is moving and work towards simplifying procedures to facilitate the common man. He also called upon banks to trust the common man. He asked the banks to take the lead in skill development for youth in a big way and to prioritize loans to students as this would be a very productive investment for the country. The Prime Minister called for an end to lazy banking and asked banks to take a proactive role in helping the common man.
However, the subject of improving the customer service and creating robust customer protection guidelines was conspicuous by its absence. Even the threat of bank employees going on an indefinite strike in the coming days, demanding wage settlement, did not appear to bother the powers that be. Let us hope that these sombre words of sympathy for the common man will be followed up by concrete action.
Another important issue that the PM highlighted was the poor financial literacy in the country and called upon the banks to encourage competitions in schools on financial literacy, so that financial literacy is inculcated at an early age among the children as well.
(The author is a banking analyst, writing for Moneylife under the pen-name ‘Gurpur’)
More importantly today, which Gyan Sangam did not choose to discuss is the machine taking over man in the financial sector. KYC is nothing but compliance with a set of documents to be kept on record. The Bank officers do not understand the customer or his needs. They today have become slaves of the computer. Every employee acts in absolute obedience to the instructions of the system because he has neither time nor interest in responding to the need of the customer/client.
Marketing officer markets the credit; System apprises the application and throws up the limit for sanction; laid down discretionary powers apply the sanction; the field officer/branch manager goes to the units to remind the due dates of installments; in desperate cases, they put up proposals to auction of assets under the SARFAESI Act. In regard to corporate entities, the proposals are discussed in cozy chambers; anticipated project returns as proposed by efficient chartered accounts are endorsed and the proposals go to the Boards for sanction. The boards have little time to go through the nitty gritty of things and they approve. When the monitoring reports are placed again before the Board, they hardly have time to scrutinise and raise relevant questions. The result is they get into the NPA group. When the NPA statement also reaches the Board, the one-day or half-day Board has little time to go into details of the voluminous papers before them and they fail to monitor them. When the NPAs touch the roof, everybody sheds crocadile tears as if the bank is a victim of circumstances in generating them.
Humanising banking is the need of the hour. The reforms should focus their attention here.
-R. Asokkumar
Today the young HDFC bank has higher market cap than the behemoth SBI. It is inconceivable that only the government interference is responsible for this.
Any entity to be efficient has to be controlled and run by people with stake in the entity. This is possible only with private sector, and privalisation of the banks is the only way forward keeping with the maxim that the government has no business to be in business.
Let the government operate special purpose institutions such as SIDBI and NABARD to meet the developmental needs. Let the commercial banks be in private sector domain.