The reality is that though the Indian banking sector has not been hurt by the ongoing global finance crisis, yet it has a long way to go in competing with its counterparts in other countries. The Reserve Bank of India’s annual policy statement is round the corner. The big challenges still loom large before the entire economy – satisfaction over GDP growth rate is nothing more than a mere complacency as the emerging economy has to move forward and should not waste time in drum beating. The government has to do a balancing act of sustaining economic growth on one hand and maintaining price stability on the other. Side by side, the monetary authority’s prime role is to be maintained – steps are necessary towards gradually weaning away the economy from its past tendency of dependence on accommodative monetary policy so as to make it market-driven with an aim to prop up growth and arrest inflationary pressure. Thankfully, ongoing facts and circumstances vis-à-vis policy prescriptions are not moving in the wrong direction if a comprehensive view is taken. The comparatively muted growth of credit is likely to be stimulated and buoyancy restored. Thus, the inflationary pressure needs to be controlled without affecting the momentum for growth. The reality is that though the Indian banking sector has not been hurt by the ongoing global finance crisis, yet it has a long way to go in competing with its counterparts in other emerging economies as well as the developed countries, globally speaking. No doubt, Indian banking has emerged as a strong and vibrant banking system and has its standing and reputation in the global financial market. It ranks sixth in terms of efficiency, productivity and soundness among 11 banking institutions of emerging economies. Some of the major strengths on this score that have helped Indian banking marking their place on the global banking scene are: regulatory systems, commendable economic growth, technological advancement and risk assessment system as well as credit quality. When compared with other countries like China, Japan, Russia, Singapore, UK, USA on these essential parameters, Indian banks stand better than/ at par with China, Japan and Russia but less advanced than Singapore, UK and USA. Thus, it can be said safely that we are moving closer to a global benchmark. But that does not call for any sort of complacency as there are a number of areas which need to be geared up for future growth — diversification of markets beyond metropolis/ big cities, SR systems, size of banks, high transaction costs, banking infrastructure and of course labour inflexibilities. Essentially, in today’s business climate, becoming a high performance organization requires evaluation of current corporate resources, technology and people. That is more, technological penetration level in India till now has been quite modest. Wide disparities exist within the banking sector as far as technological capabilities are concerned. Banks have to further gear up the technological efficiency level of employees before reaching at a level-playing field vis-à-vis biggies in the private sector/ foreign banks. Besides, computerization needs to go beyond the mere ‘arithmetical’ and needs to be leveraged optimally to achieve and maintain high service and efficiency standards. The challenge, therefore, remains threefold: acquiring the right technology, deploying it optimally and remaining cost-effective whilst delivering sustainable returns to shareholders. Thus, managing technology so as to reap the maximum benefits remains a key challenge for Indian banks. As has rightly been diagnosed, an institution can optimize performance by ensuring that each of the three sides of the performance triangle — corporate culture, the task the individual must perform and the motivation/ behavioural make-up of their employees – undergoes cautious treading. It is a pure case of change management, and as such banks need to focus on appropriate capacity-building measures to equip their employees to handle advanced risk management systems. And it will not be out of the place to mention here that the supervisors as well need to equally equip themselves with appropriate skills to have effective supervision in adopting those systems.
Again, the RBI may actively consider giving additional licenses to private sector players and NBFCs in order to extend the geographic coverage of banks and improve access to banking services. The need is also there to strengthen the capital base of not only laggard public sector banks but RRBs as well so that the latter can have adequate capital base to support increased lending to the rural economy in particular. Providing banking facilities to the villages having population more than 2,000, and extending insurance and other services to these villages using the BCBF (Business Correspondent Banking Facilitator) model could pave the way for the banking services reach the unbanked areas. Side by side, it should not be forgotten that the contribution made by cooperative banks are also not small. Cooperative banking can bring about financial inclusion as the future of UCBs lies in penetrating the unbanked people in urban areas. RBI Deputy Governor Dr KC Chakrabarty rightly opined, “Commercial banks may not be able to penetrate this layer because they do not have contact with people as much as UCBs do. Yes, of course, for reaching out to these people, UCBs have to bring in technological enhancements.” It is in the fitness of ongoing facts and circumstances that the RBI allows banks to take over weak urban co-ops. The RBI issued guidelines for amalgamation of weak UCBs with commercial banks. In cases where such proposals are not forthcoming, the RBI may consider transfer of assets and liabilities (including branches) of UCBs having a negative net worth with Deposit Insurance and Credit Guarantee Corporation’s support. The scheme ensures cent per cent protection to depositors (DICGC support would be restricted to the amount provided under Section 16(2) of the DICGC Act, 1961). That is to say, the existing created capacities are to be fully explored so that the incidence of regional imbalance comes down to the minimum level – not an easy task but achievable, measurable and realistic in nature. This would have been possible had there been adequate attention paid to all of the regions. This has not been done over the years as a result of which eastern region and Northeast have been showing a very low rate of growth compared to other regions in spite of the fact that strategic importance and latent resources have been very much in existence. Whither HR policy? Is it attrition-oriented? Many of the banks are now going to hire fresh talents from the market. On this score it is to be ensured that the banks are required not only to recruit fresh talents, but retain the existing talent through prudent human resource management policy also, in the absence of which the growth process will be hit largely. It has been noted that in some of the cases golden things are not located by the top and that too out of personal bias or to manoeuvre the misdeeds which are non-banking and non-professional in nature. Such personnel at the decision-making level are to be essentially taken to task by the Reserve Bank of India so that the damagers do not go scot-free. Let market musings get enquired, albeit confidentially. The need is there to have a close watch on how public money is utilized for training and development purposes. An integrated HRD approach calls for a bold strategy focusing on the systems targeting to achieve both business goals and employee satisfaction. Finally, it is good to note that foreign banks are warming up to make foray into small towns as well. Competition has been intensifying and in the coming days more players would be coming in a bigger way. Indigenous banks are thus required to be more on the guard so that they are not heavily dislodged from the regions where they are ruling high. Not only more technology intensification, but more leaning towards educating the customers and retaining technique practices are required to be followed. In fact, a crisis period does some good too — it calls for a careful assessment of the causes, effects as well as the future plans; and as such any sort of complacency is out of question. Naturally, fixation of strategies, continuous upgrade of skills and making the best use of talent, backed by effective planning techniques that take care of the forthcoming series of happenings/ things, pose the biggest challenge. There is no room for complacency.
Again, the RBI may actively consider giving additional licenses to private sector players and NBFCs in order to extend the geographic coverage of banks and improve access to banking services. The need is also there to strengthen the capital base of not only laggard public sector banks but RRBs as well so that the latter can have adequate capital base to support increased lending to the rural economy in particular. Providing banking facilities to the villages having population more than 2,000, and extending insurance and other services to these villages using the BCBF (Business Correspondent Banking Facilitator) model could pave the way for the banking services reach the unbanked areas. Side by side, it should not be forgotten that the contribution made by cooperative banks are also not small. Cooperative banking can bring about financial inclusion as the future of UCBs lies in penetrating the unbanked people in urban areas. RBI Deputy Governor Dr KC Chakrabarty rightly opined, “Commercial banks may not be able to penetrate this layer because they do not have contact with people as much as UCBs do. Yes, of course, for reaching out to these people, UCBs have to bring in technological enhancements.” It is in the fitness of ongoing facts and circumstances that the RBI allows banks to take over weak urban co-ops. The RBI issued guidelines for amalgamation of weak UCBs with commercial banks. In cases where such proposals are not forthcoming, the RBI may consider transfer of assets and liabilities (including branches) of UCBs having a negative net worth with Deposit Insurance and Credit Guarantee Corporation’s support. The scheme ensures cent per cent protection to depositors (DICGC support would be restricted to the amount provided under Section 16(2) of the DICGC Act, 1961). That is to say, the existing created capacities are to be fully explored so that the incidence of regional imbalance comes down to the minimum level – not an easy task but achievable, measurable and realistic in nature. This would have been possible had there been adequate attention paid to all of the regions. This has not been done over the years as a result of which eastern region and Northeast have been showing a very low rate of growth compared to other regions in spite of the fact that strategic importance and latent resources have been very much in existence. Whither HR policy? Is it attrition-oriented? Many of the banks are now going to hire fresh talents from the market. On this score it is to be ensured that the banks are required not only to recruit fresh talents, but retain the existing talent through prudent human resource management policy also, in the absence of which the growth process will be hit largely. It has been noted that in some of the cases golden things are not located by the top and that too out of personal bias or to manoeuvre the misdeeds which are non-banking and non-professional in nature. Such personnel at the decision-making level are to be essentially taken to task by the Reserve Bank of India so that the damagers do not go scot-free. Let market musings get enquired, albeit confidentially. The need is there to have a close watch on how public money is utilized for training and development purposes. An integrated HRD approach calls for a bold strategy focusing on the systems targeting to achieve both business goals and employee satisfaction. Finally, it is good to note that foreign banks are warming up to make foray into small towns as well. Competition has been intensifying and in the coming days more players would be coming in a bigger way. Indigenous banks are thus required to be more on the guard so that they are not heavily dislodged from the regions where they are ruling high. Not only more technology intensification, but more leaning towards educating the customers and retaining technique practices are required to be followed. In fact, a crisis period does some good too — it calls for a careful assessment of the causes, effects as well as the future plans; and as such any sort of complacency is out of question. Naturally, fixation of strategies, continuous upgrade of skills and making the best use of talent, backed by effective planning techniques that take care of the forthcoming series of happenings/ things, pose the biggest challenge. There is no room for complacency.
Dr BK Mukhopadhyay (The writer, a management economist, is an Associate Professor, NERIM, Guwahati )
