Six areas of reforms to expect from Modi's banking retreat
ICICI Bank Chairman K V Kamath will talk about financial architecture of medium and small scale enterprises at the retreat
Manojit Saha | Mumbai
January 1, 2015 Last Updated at 17:32 IST
It’s going to be the biggest Gyan Sangam (knowledge confluence) for public sector bank chiefs who will be able to interact with some of the celebrated names in the country’sfinancial sector and present a blueprint for the next generation of banking reforms to Prime Minister Narendra Modi.
The finance ministry, which has organised the two-day retreat in Pune, has taken care to ensure that the participants comprising all heads and executive directors of public sector banks apart from the finance minister and the Reserve Bankof India governor and deputy governors are physically and mentally charged up for the big event.
That explains a ministry statement that the second day will begin with yoga and a talk by Swami Sukhbodhanand on leadership and change management. Not that the bankers need any external stimulus to put their best face forward at the event. Most Mumbai-based bankers have decided to start the “knowledge confluence” much before the event and have decided to hire a bus to go to Pune together.
On the first day, “sector experts” including RBI Director Nachiket Mor, former UTI Bank CMD P J Nayak, HDFC Bank Deputy CEO Paresh Sukhtankar and Bandhan CMD C S Ghosh will meet the bankers and make separate presentations on six areas: financial inclusion, technology, priority sector lending, risk management, people strategy and governance.
On the second day, these six groups will present their recommendations, following which ICICI Bank Chairman K V Kamath will talk about financial architecture of medium and small scale enterprises. The groups will then present the final blueprint to the prime minister at the concluding session.
Sources familiar with the event proceedings said a reforms blueprint is expected to be drawn up in the following six areas.
Banking structure & consolidation.
The previous government had mooted the idea of a holding company structure for public sector banks but not much progress was made. The idea was to enable public sector banks to raise capital more efficiently as the government, which is the majority owner of the banks, is constrained in infusing fresh capital every year due to its fiscal consolidation commitment. Public sector banks will need Rs 2.4 lakh crore of capital till 2018, if the government want to continue with the same shareholding.
Consolidation among public sector banks was pushed by P Chidambaram when he was the finance minister in the previous government. The previous government supported the move, but said it would not force banks to merge and such a proposal should come from respective bank boards.
Asset quality & recovery
The biggest worry of the banking sector at present is asset quality which declined sharply in recent years. According to RBI data, the gross non-performing asset in the banking system rose to 4.5% of gross advances in September 2014 as compared to 4.1% in March.
Total stressed asset in banks (gross NPA + restructured advances) rose to 10.7% from 10% during the six month period. One way to reduce bad loans is to have an effective recovery mechanism as the present legal system seems to be inadequate.
According to latest data, banks have referred 1.86 million cases in FY14 to Lok Adalats, Debt Recovery tribunals and under SARFESAI Act, (78% increase over the previous year), amounting to Rs 1.74 lakh crore and recovered only Rs 31,100 crore which is just 18%. The government is planning to make laws more stringent by amending the SARFAESI Act and DRT laws to effectively deal with the issue of bad loans, especially those being created by suspected wilful defaults.
Financial inclusion
Banks have already opened close to 100 million accounts under the Pradhan Mantri Jan Dhan Yogana. However, 75% of the accounts still don’t have any money. The retreat will discuss how to take the initiative forward and how to plug the loopholes that still exists.
Human resources
The central bank has termed the decade as a “human resources decade” with a huge number of middle level staff going to retire. With banks opening a huge number of accounts under the Jan Dhan scheme, they will need more branches and personnel to man them.
Priority sector lending
At present, there is a uniform rule for all types of banks regarding priority sector lending norms and the target. There is a suggestion that priorities should depend on an individual bank’s strength and should not be uniform. For example, a public sector bank with a predominantly rural presence can have direct agriculture as the main priority but a foreign bank which has limited branch presence could see more opportunity in small and medium enterprise financing. Some clarity on the issue is expected to emerge at the retreat.
Technology
While most banks are on core banking platform, some of the regional rural banks are yet to adopt CBS. In addition, it is virtually impossible to reach the vast unbanked population in the country through a brick and mortar structure and technology will play a key role in expediting financial inclusion.
A multi-channel approach using handheld devices, mobiles, cards, micro-ATMs, branches, kiosks etc, should be used by banks while ensuring that the transactions put through such front-end devices should be seamlessly integrated with the banks’ CBS. In addition, alternative channels, like using social media can help banks to understand customers better and can be used to inform marketing campaigns. A detailed roadmap on this is expected at the Pune meeting.
The finance ministry, which has organised the two-day retreat in Pune, has taken care to ensure that the participants comprising all heads and executive directors of public sector banks apart from the finance minister and the Reserve Bankof India governor and deputy governors are physically and mentally charged up for the big event.
That explains a ministry statement that the second day will begin with yoga and a talk by Swami Sukhbodhanand on leadership and change management. Not that the bankers need any external stimulus to put their best face forward at the event. Most Mumbai-based bankers have decided to start the “knowledge confluence” much before the event and have decided to hire a bus to go to Pune together.
On the first day, “sector experts” including RBI Director Nachiket Mor, former UTI Bank CMD P J Nayak, HDFC Bank Deputy CEO Paresh Sukhtankar and Bandhan CMD C S Ghosh will meet the bankers and make separate presentations on six areas: financial inclusion, technology, priority sector lending, risk management, people strategy and governance.
On the second day, these six groups will present their recommendations, following which ICICI Bank Chairman K V Kamath will talk about financial architecture of medium and small scale enterprises. The groups will then present the final blueprint to the prime minister at the concluding session.
Sources familiar with the event proceedings said a reforms blueprint is expected to be drawn up in the following six areas.
Banking structure & consolidation.
The previous government had mooted the idea of a holding company structure for public sector banks but not much progress was made. The idea was to enable public sector banks to raise capital more efficiently as the government, which is the majority owner of the banks, is constrained in infusing fresh capital every year due to its fiscal consolidation commitment. Public sector banks will need Rs 2.4 lakh crore of capital till 2018, if the government want to continue with the same shareholding.
Consolidation among public sector banks was pushed by P Chidambaram when he was the finance minister in the previous government. The previous government supported the move, but said it would not force banks to merge and such a proposal should come from respective bank boards.
Asset quality & recovery
The biggest worry of the banking sector at present is asset quality which declined sharply in recent years. According to RBI data, the gross non-performing asset in the banking system rose to 4.5% of gross advances in September 2014 as compared to 4.1% in March.
Total stressed asset in banks (gross NPA + restructured advances) rose to 10.7% from 10% during the six month period. One way to reduce bad loans is to have an effective recovery mechanism as the present legal system seems to be inadequate.
According to latest data, banks have referred 1.86 million cases in FY14 to Lok Adalats, Debt Recovery tribunals and under SARFESAI Act, (78% increase over the previous year), amounting to Rs 1.74 lakh crore and recovered only Rs 31,100 crore which is just 18%. The government is planning to make laws more stringent by amending the SARFAESI Act and DRT laws to effectively deal with the issue of bad loans, especially those being created by suspected wilful defaults.
Financial inclusion
Banks have already opened close to 100 million accounts under the Pradhan Mantri Jan Dhan Yogana. However, 75% of the accounts still don’t have any money. The retreat will discuss how to take the initiative forward and how to plug the loopholes that still exists.
Human resources
The central bank has termed the decade as a “human resources decade” with a huge number of middle level staff going to retire. With banks opening a huge number of accounts under the Jan Dhan scheme, they will need more branches and personnel to man them.
Priority sector lending
At present, there is a uniform rule for all types of banks regarding priority sector lending norms and the target. There is a suggestion that priorities should depend on an individual bank’s strength and should not be uniform. For example, a public sector bank with a predominantly rural presence can have direct agriculture as the main priority but a foreign bank which has limited branch presence could see more opportunity in small and medium enterprise financing. Some clarity on the issue is expected to emerge at the retreat.
Technology
While most banks are on core banking platform, some of the regional rural banks are yet to adopt CBS. In addition, it is virtually impossible to reach the vast unbanked population in the country through a brick and mortar structure and technology will play a key role in expediting financial inclusion.
A multi-channel approach using handheld devices, mobiles, cards, micro-ATMs, branches, kiosks etc, should be used by banks while ensuring that the transactions put through such front-end devices should be seamlessly integrated with the banks’ CBS. In addition, alternative channels, like using social media can help banks to understand customers better and can be used to inform marketing campaigns. A detailed roadmap on this is expected at the Pune meeting.
http://www.business-standard.com/article/finance/six-areas-of-reforms-to-expect-from-modi-s-banking-retreat-115010100535_1.html
No comments:
Post a Comment