Monetary Policy breathed fresh air and for once customers felt some comfort existed for them too. Post-liberalisation banks went on investing in technology and realising the costs of such investments through various types of charges. Now after realising the cost of investment in technologies over the last two decades, it is time to pass on the benefits to the customers in whose name 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 a 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 realising 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.
Now that PSU banks have been consolidated into 10 major banks, it is time to make them truly delivery instruments for the economy. The health of the economy is dependent upon banking. Let these consolidated PSU banks remain as truly commercial banks that can compete with the global banks. For this to happen, it is necessary to divest them of much of the other key responsibilities that do not gel with either their technologies or client expectations.
One of the virtuous things that the Reserve Bank of India did recently was redefining the priority sectors and giving emphasis on inclusivity with focus on lagging districts. It is contextual to discuss the narrative. The Indian economy targeting double-digit growth has competing clientele bases in the current milieu of banking. Domain banking has moved to high tech banking. Manufacturing MSMEs have been in the negative zone for over a decade. Several NBFCs focused on small business finance, but the IL&FS and consequent failure of mutual fund promises left them disappointed.
The Atmanirbhar Bharat Abhiyan for subordinate debt to the stressed MSMEs and NPAs has not been moving, save a few exceptions. The reasons: banks have transferred the NPAs either to their stressed asset recovery or stressed asset management branches from where they do not want to identify those deserving revival. They also do not want to review their own decisions as they feel it could lead to a blame game among various tiers of officials. Further, several of them also were moved to ARCs for recovery through sale of assets.
It is time to realise that the PSU banks have no legroom for further NPAs. Second, post-liberalisation, universal banking has left the narrow banking less interesting to pursue. Whatever way we redefine and incentivise the priority areas, they have neither skills nor knowledge to lend for such activities. It is, therefore, better if they are shifted to institutions that have the ability to respond to the needs of financial inclusion and reset priorities.
Apex institutions like the three-and-a-half decades old Nabard and almost 30-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 MSEs. Both these institutions that have a wealth of knowledge in their human resources need a thorough revamp. Delaying the process would end up in further wastage of huge organisational resource.
PSU banks have the option of exploiting the co-finance window but they are bogged down by the mindset of collateralised loans. While they are wont to outsourcing several activities in their fold, when it comes to monitoring and supervision of small loans, they lose their verve. They do not want to openly admit but only whisper aloud in their corridors.
Handholding, mentoring and counselling are imperatives while lending to small farmers, small entrepreneurs, startups etc. It is time the RBI allowed banks ro outsource such activities for mutually agreeable cost-sharing between them and state-accredited institutions like Telangana Industrial Health Clinic Ltd.
Employment-oriented loans, education loans, loans for housing the poor, priority sector should all be handled by regional rural banks (RRBs) , small finance banks and cooperative banks. Having done the first step of merging the banks, now is the time to transfer the rural branches of all these banks to their sponsored rural banks. Then let these rural banks be state-centric and rural-centric. They should compete with small finance banks and cooperative banks for a healthy business growth.
India’s future still lies in rural areas — agriculture and allied activities. The focus should be on providing value addition to agriculture at the doorstep of farmer; weaning away unproductive labour from farm 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 upskilling in the farm sector. Enhancing the reach of banking is imperative. The new generation banks, RRBs as well as cooperative banks are functioning with the latest technologies and are networked with payments systems nationally. Therefore, with Aadhaar instrumentality and Jan Dhan accounts, delivery of direct benefit schemes is no longer a worry.
‘Kisan Bank’ for farmers, allied agriculture and agriculture marketing (RRBs and cooperative banks should be in this bank’s fold and Nabard will be the holding Bank); ‘Udyog Mitra Bank’ for lending to MSMEs and small business finance, ‘Vanijya Bank’ for retail banking, home, education and transport loans, ‘Moulika Vitta Vitarana Bank’ (to revive development finance institutions for lending to infrastructure) would make portfolio banking with capacities to cross-hold inherent risks of lending. The Centre would do well to have brainstorming sessions on these as the sector is trying to breath fresh air now.
(The author is former Banker and Economist)
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