Only a few days back from today - the 44th anniversary of the most momentous event in Indian Banking - Bank Nationalisation of 14 major Banks on 19th July, 1969 by the then Union Govt. headed by Prime Minister Smt. Indira Gandhi, Reserve Bank of India (RBI) penalized some known big public sector banks like State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, Central Bank of India, Indian Overseas Bank and United Bank of India for violating KYC/AML anti-money laundering norms.
Earlier, following a probe into charges leveled by an online portal Cobrapost, RBI had imposed fines on top three private sector Banks namely Axis Bank, HDFC Bank and ICICI Bank. This definitely tells a lot about the present health of and challenges before the Indian banks at large.
It may be noted that a few months back, Reserve Bank Deputy Governor K. C. Chakrabarty cautioned the banks against charging high and discriminatory prices on products and also against non- adherence of established norms and procedures.
We all know that the Central Govt. and RBI granted lots of autonomy and discretion after the onset of policy of liberalization in Indian Economy to empower the banks to take important decisions in order to implement customer friendly initiatives and give a natural boost to its overall business in an efficient and profitable manner.
As a result, during the last two decades, the banking in the country effected some changes in its operational model with state of art technology as the major game changer. But, the core issues like pricing of both deposit as well as credit products together with various charges, hidden and un-hidden both, have not been or couldn't be addressed in a sincere and genuine manner to make the banking operations really inclusive and customer friendly.
No doubt, the cost of operation in our banking is still reasonably high for multiple reasons, both controllable and non-controllable. In February this year while speaking to the SBI brass at the headquarters of the country's largest lender during his visit to Mumbai, the Union Finance Minister did stress this point by saying that banks can attempt to improve their operating efficiency, reducing costs, and pass on the benefit to borrowers through lower interest rates.
If one goes through the expenditure items in profit and loss account of Indian banks, the areas of wasteful and avoidable expenses can very well be observed and hence can urgently be taken care of. The issue of NPA management has been a perennially serious concern area which has deteriorated further with more severity during the last few quarters. Consequently, the NIM (Net Interest Margin) has been under increasing pressure in case of majority of banks in the country. These factors naturally have a definite bearing on the pricing of products.
The is ripe for the Govt. to revisit its policy of Priority Sector Lending (PSL) by Indian Banking Sector to make it more inclusive and effective for ensuring sizable contribution of Agriculture and MSME (Micro, Small and Medium Enterprises) to overall GDP growth of the economy in coming years. Dwindling growth of Agriculture over the last couple of years is a real cause of concern not only for the food security of the country but also for the well-being of majority of our population that is still dependent on agriculture and allied activities for their livelihood. Similarly, lending under MSME segment must be augmented well to sustain and further improve its growth rate as it is very necessary for employment generation as well as balance growth of our economy which is passing through a rough weather for quite some time.
Constant monitoring of PSL figures of Banks by RBI at least on month to month basis together with its discreet checking and analysis to ensure data integrity and correctness is a must for directing individual Banks for achievement of set targets suitably. NPAs in PSL can very well be contained by need based lending with prudence and transparency. The Govt. machinery must also come forward to help disburse the farm loan etc. by granting various certificates quickly and genuinely wherever required and also lend active support in the recovery efforts of lending institutions. Moreover, as a ground reality, it is easier to recover loans in rural areas as the rural people are still comparatively honest in repaying their loan dues
In fact, the Central Govt. and RBI have enough room for addressing the grey areas in our banking system which is, otherwise too, urgently needed in order to improve the overall health of banking and also the economy of the country.
Milan K. Sinha is a freelance writer. He has worked in Banking and Insurance sector for three decades following three years of active writing in various newspapers and magazines. Presently he is engaged in stress management, wellness and awareness activities besides freelance writing.