Freedom To Be Bankable

At the stroke of the midnight hour on 15thAugust 1947, we won our political freedom; but it took a while for the economy to break free of its chains on 24th June 1991 with then finance minister ManmohanSingh’s epochal Union Budget. A little over a quarter of a century down the line, you still have a relic to deal with -- banking.

You do have scores of new private banks; the foreign on the turf have more freedoms; customers have new wares to shop from in this mart. But look deeper – seventy per cent of our banking systems’ assets are still with state-run banks, but at the rate at which they have been losing share, it will fall to fifty per cent mark soon enough. You might say it’s a good thing – after all, competition is playingits part. What we did not bargain for is the lion’s share of dud-assets which reside in their bellies; many are starved of capital. You and I pick up the bill for this as tax-payers. It’s not a good sign.

Worse, these banks are no more a port-of-call for some of our brightest in the financial sector; pay continues to trail what’s on offer at private and foreign banks; freshly-minted payment- and small finance banks; and other parts of the services industry beckon them. All this even as technology continues to chisel away at once lucrative businesses which were thought to be captive and eternal.

It’s well past time to move on

Mint Road’s Financial Stability Report (FSR: June 2017) observed that as envisaged under various regulatory initiatives, new players like differentiated banks are offering niche products to specific strata of consumers. That financial disintermediation is getting broadened with growth in market-based financing of real sector. “These developments, although envisaged under regulatory frameworks, will have inevitable side-effects like increased competition and downward pressure on traditional earning modes of commercial banks. The need of the hour is to take this as opportunity for their business models”, noted the FSR.

If the above is the business environment in which they are set to operate, the moot question is why are they – the state-run banks -- the way, they are? Even as their private peers continue to flourish -- by and large. 

As has been articulated by the two Narasimham Committee Reports, and the P J Nayak Committee Report, these banks need be given the freedoms to be what they want to be – be it their business model, pay or which sectors to lend to. As on date, they continue to be all things to all comers. Is it any wonder they continue to sprout dud-loansquarter on quarter? It’s one thing to recapitalise them, but if it’s going to business as usual, you can as well kiss farewell to them.

One of the key reasons why these banks continue to be shackled is political and bureaucratic interference. It’s time to recall both government and Reserve Bank directors on the boards of these banks – if it’s fine not to have them on the boards of private banks. It will be a good enough start.