Opinion: Random Reflections- Solutions for the Banking Sector

“Call the dog mad and shoot it” was the old slogan. The present slogan is, “poison the dog, make it look like mad and shoot it”.

The governments have done exactly the same with public sector banks and they want them to be handed over to corporates – local and international.

Arguments made are 1. We can’t keep giving capital, 2. The market share is going down, 3. The NPA is mounting, 4. Profit is going down and 5. They are not efficient.

The facts are,

•  Banks have paid back more than the capital provided. In fact they don’t need fresh capital if the corporate loans are recovered instead of writing off. In fact the capital provided by the government is only to write of corporate loans. The Basel norms for capital are only advisory and recommendatory. They are not mandatory. The sovereign guarantee of the government is the biggest security for the customers.
•  It is the government which started ICICI Bank, HDFC Bank, Axis Bank, from its own corporations and made them private. Government deposits were given to them, currency chests were given. More fresh currency was given during demonetization and their share in business has increased. Once you favour the private sector their share will increase. Small banks, payment banks and NBFCs are favoured. They are permitted to provide better interest on deposits.
•  The government killed development finance institutions and asked public sector banks to provide long term credit for sectors like power, telecom, steel, infrastructure etc where the NPA has become huge. Private banks concentrated on retail credit. The parliamentary standing committee report of Feb 2016 has clearly analysed and suggested remedies but government did not act. The ARCs, NCLTs, DRTs help the borrower and not the bankers. NPA norms have to be changed, restructuring allowed to honest borrowers and personal assets of borrowers who misuse funds to be seized. We have sick units but not sick borrowers.
• Profit is not the criteria for which Nationalisation was done. Still banks make profit. The net profit is down but gross profits keep increasing. So the recovery mechanism has to improve. That is in the hands of the government. Jandhan A/cs, Pension Yojanas, KCCs, MSME Loans, government sponsored schemes are not for profit. The criteria of performance has to be hanged.
• Look at the efficiency of ICICI and Ms.Chanda Kochar with incomparable salary, Axis Bank and Ms. Shika Sharma and the skeletons coming out of HDFC bank. Recall what happened to Global Trust Bank, Centurian Bank and the latest Yes Bank. Efficiency should not be measured in terms of net profit alone. See the No. of accounts per employee, business per employee, transaction per employee, loans per employee- The difference is huge.

Still there are issues to be addressed. What are they?

1. Make Public Sector Banks really Public.

Increase staff, increase branches especially in the rural and semi urban areas where the demand is huge. Provide small credits more. Revise priority sector norms to target the smaller / weaker sections of the society. Focus on retail credit to housing, education, agriculture, organic farming, value addition, cottage industries, handloom, artisans, village industries, small trades, women, youth and micro and small industries. Create specialized branches for this. Create special loan schemes for these.

2. Leverage Technology to help the majority.
Use big data analysis but provide low cost, friendly and totally secure technologies for people. Use data for analysis of loan but believe in people’s capacity. Provide appropriate technology for the majority.

3. Bring stringent norms for Recovery
Make the borrower and his personal assets pay for misuse of funds. Make laws for this. Bring transparency in lending. Fix accountability if there is collusion. Private corporates are the fountain heads of corruption. Let them not pollute banking by making few corrupt. The moment a loan is written off make it public. Reward prompt repayment.

4. Provide financial literacy to the masses through banks. Let everyone know the schemes and norms. Spread the message of repayment culture. Explain how the banks are like golden gooses.

5. Recruit local staff and bring community ownership of banks. The local staff will know the needs of people. He/She can assess loans better. Let the local community own the banks. Not through shares but through participation in banking activities. Help the Banks to grow and mutually people grow.

6. Have State Focused Banks
Germany has municipal banks which help development within the municipalities. In our country of diversities states have their own culture, identity, climate and talents. Consider state focused banks.

7. Increase Deposit Interest Rates and Loan Interest
Our country has huge number of small household depositors who need security of money as well as regular income. Interest rates have gone down from 15% to 5%. Huge loss for common man. This is to help the rich corporates who get cheap loans. They pay less interest than farmers and students who avail education loan. Provide reasonable interest and charge 4% more than the deposit rates for the loans. People will pay up.

8. No Cross Selling but a complex for different services
Lending, insurance, investments require different skills. Why banks should do all? Why incentives for cross selling which leads to mis selling? That too to the senior executives. This is indirect form of corruption.

Instead have different services by different agencies in the same complex or adjacent. Those who need will avail them.

9. Revamp District Credit Committee and make them functional and accountable.
With Lead Bank Scheme and NABARD’s potential linked credit plan, they played a crucial role in development. Revamp them. Involve local community in DCC & BCC. Fix accountability.

10. More specialized Branches
We need agriculture development branches, village industry dev. branches, MSME branches, women’s branches, education loan branches etc.

11. Bring Relationship Banking – Not for rich
Have longer tenure for staff. Let them develop relationship, with people, assess needs of the locality, provide support.

12. Pay the Best Salary & Provide Best Service Conditions
You require the best talents to develop the nation. Banks form the grass root development architecture. Recruit the best. Pay the best salary and provide work life balance. Let them enjoy the service, not work for income alone.

13. Provide education loans to all those who need. Higher education is costly. School education should be free for all. But for higher education provide loans at cheap rates.

14. Develop Development Finance Institutions
China’s all top banks which are the world’s top are development finance institutions – For self-reliance we need DFIs

15. Bring more transparency. In lending, writing off, and in career progression. Today everything is opaque. It’s not the way. Transparency brings efficiency and accountability.

16. Sustainable Development
For the sustainable development goals to be implemented, banks can be tools. When they care for poor, look at gender equality, support education, look at environment impact while lending, they can make a difference.

Hence we require a public banking system which provides service and also make small profit. It is in the hands of the policy makers, the government. The people are the real owners. They should analyze, alter and amend policies to serve the public. Private sector is only for profit. Public sector is for providing service to the people. If this is kept in mind, the banking system can be transformed.

Get to know the poor in your country. Love them. Serve them. – Thomas Franco

Thomas Franco is former General Secretary of All India Bank Officers’ Confederation.

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