RBI's concerns on banking and economic stability - Moneylife

RBI's concerns on banking and economic stability - Moneylife

My VIEW:

That the problems of
Indian financial sector are much deeper and may need policy initiatives from
GOI additional to usually debated regulatory reforms, implementing new
bankruptcy code and further dilution of Centre’s stakes in public sector
banks(PSBs) is being flagged in various reports published by the Reserve Bank
of India. In this respect at least, India’s central bank is transparent and it
is the media and other stakeholders including GOI who are ignoring strong
signals given by RBI including in the latest Annual Report (Refer Governor’s
Overview: RBI Annual Report 2014-15).
The revelation that ‘while the PSBs
accounted for 72 per cent of total banking sector assets, they accounted for
only 42 per cent in total profits during 2014-15, with the private sector
banks(PVBs) surpassing the PSBs in the share of total banking sector profits’
may not surprise anyone who has been following the pressures on PSBs to do
‘directed’ business with management and HR-related constraints emanating from
their government ownership. The same RBI report gives the reason for PSBs to
remain in public ownership. That is the retarded growth prospects (remaining
happy with less than 30 per cent share in India’s banking business) and
unwillingness to penetrate to rural and semi-urban areas evinced by private
sector banks. Reluctance to take risk and an eye on creamy layer of business
distinguish private sector banks from PSBs in India.

The continuing deterioration in the asset
quality of banks in general, and PSBs in particular, can be traced to
inadequate attention paid to infusing professionalism at the top and consequent
inefficiency from top to bottom.

As other institutions like cooperative
banks and NBFCs are also not in better health, needful has to be done and done
quickly to restore the health of scheduled commercial banks across private and
public sectors. Government should own the responsibility to ensure necessary
linkages for credit provided under ‘directed lending’ so that the asset created
generate enough incremental income for repayment. Banks should be guided to
improve pre-disbursement appraisal and monitoring of large-sized advances. For
the purpose, banks will have to acquire sufficient in-house skills and the
present trend of ‘outsourcing skills’ can be harmful in the long run.



M G
Warrier,
Mumbai

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