Changing Contours of Banking- “Who Cares Pawn”

Since the advent of banking in India, social welfare has been prime motive so that masses at large can be brought under mainstream and the basic principal of economic development can be achieved through the channelization of earning to saving to investment to capital which further can be invested for economic growth and generation of employment. In India, Journey of banking in organized form has started with the formation of Bank of Hindustan in the year 1770 later Imperial bank of India, (a consolidated entity of Bank of Bengal, Bank of Bombay and Bank of Madras) which became State Bank of India in the year 1955. From the regulatory and monitoring angle RBI Act 1934 and Banking Regulation Act 1949 has been building blocks for the banking industry what we deal with today and time to time same was diversified as a result of changing market intricacies and dynamism. Various institutions were consolidated and couple of them was nationalized for fulfilling the objective of social welfare and lending a great hand to government for execution of drafted plans across the economy and across the all section of society.

Over the decades during sea changing economic scenario Public Sector Banks have always been instrumental in the fulfillment of government’s drafted plan whether it’s for revival of MSME (Micro Small and Medium Enterprises) or supplying credit to state and Central government through dated securities or providing the basic banking facilities to unbanked people through FI (Financial inclusion). Bankers’ alacrity for accepting new challenges, new vistas and their over the years diversifying role has been commendable. Even if government came with new developments in the economy and asked to execute at eleventh hour bankers have never questioned or opposed or made cost benefit analysis no matter same were killing experience for them. Demonetisation is a live example to justify what I am trying to confirm. No matter it was a historic decision with candid objective to squeeze black money and eradicate corruption from the country but the way all big bosses of the banking industry came up and left no stone unturned to catch eye balls of media is pathetic whether its Finance Minister’s assurance that banks have sufficient cash available to disburse in public or frequently modified RBI guidelines, every day bankers were sailing through great ordeal even their image was also tarnished by media for not providing timely cash to customers through various delivery channels instead supplying cash to corporates through back door. The culprits were handful and suspended or taken stern action  by the respective Banks’ management but those bankers who really deserved laurels and incentives were ignored by the system and could remain only pawn that were only used for the fulfillment of task like earlier events as PMJDY, PMSBY launched by the Government.

Public sector Banks are sailing through tough waters and on the verge of losing their decades old identity due to dearth of capital and huge burden of NPA (Non Performing Assets) mainly corporate advances or projects financed on government’s urge and guidance to specific sectors like Power sector, steel sector, telecom sectors to fulfill social objectives. Guidelines and circulars are frequently covering the space and catching media eye balls but willingness to resolve same is still questionable which is quite evident from the government’s decision to ask all banks to make haircut of 50% in all stressed accounts  which banks want to file under IBB (Insolvency and Bankruptcy Board) under the insolvency and Bankruptcy code 2016. Its same like a person dying due to anemia is asked to donate blood in order to register himself for treatment.

As per recommendation of regulator all banks are complying Indian version of Basel III guidelines inch by inch which is even more stricter  than original Basel III guidelines drafted by the BCBS (Basel Committee on Banking supervision). No think tank ever dared to question RBI’s stand on Basel guidelines and its benefit to Indian banking Industry. If we analyse Basel III guidelines in Indian banking scenario various issues boggle the mind like-

All Scheduled commercial banks are maintaining CRR (Cash Reserve Ratio) of 4% with RBI. Here yield is negative because RBI pays no interest but banks have to pay interest to customers on deposits. Is there any logic behind the same and what stops RBI to pay interest to this parked amount?

After adoption of Basel guidelines all banks operating in India has to maintain LCR (Liquidity Coverage Ratio) which is nothing but ensuring banks Cash flow favorable over 30 days horizon. Moot question is when all banks are maintaining CRR of 4% on ongoing basis it there any requirement for the same.

Basel compliant banks has to maintain CRAR (Capital to Risk Weighted Asset Ratio) of 8% on ongoing basis but in India RBI has asked all scheduled Commercial banks to maintain CRAR of 9%. Is there need to explain that capital has a cost so why RBI is so overenthusiastic and seeking to over comply Basel guidelines even when PSU banks are in dearth of capital.

If cost benefit analysis is made by all banks who are complying Basel not only in India but even in overseas market too, its only IT and Software companies not banks, are minting money and charging hefty amount of complying ever changing latest Basel guidelines. In India we too can easily find various small and mid size banks despite their poor financials have parked huge amount for software purchase for complying Basel and other compliance since last decades. They are nothing but eating hard earned profit made by these banks.

Strike by banks’ union has always been questionable and not appreciated by the society whether its corporate or common person due to problems encountered by them in case banks are closed, but none never bothered to understand that if bankers don’t strike and entertain their loss of pay, they will never get their salary revision. More interestingly, when bipartite settlement due, bankers are denied to better pay why, because banks financials are not good in comparison to private banks and several factors are analysed that their profitability, return on assets their business mix and overall growth rate  and banks top management can’t afford to pay better. Its same like a gate keeper is employed and on annual pay revision his pay is compared with sales man who is generating sales for the company.

Since last 3 year, Credit growth is decreasing in PSU banks and all time low resultantly NIM (Net Interest Margin) is historic low because except Core Banking job i.e. accepting deposits and disbursing credit to customer, banks are engaged in Aadhar seeding, making PMJDY successful, canvassing APY (Anal Pension Yojna), PMFBY (Pradhanmantri Fasal Bima yojna), even banks have become experiment centre and a launch pad to fulfill government’s aspirations no matter same is worthwhile for the banks or not. Even country’s biggest bank has asked govt to pay back Rs. 800 Cr. Cost towards demonitisation then think about minnows, (small PSU banks) why are they laggard and who the culprit is? Government, regulator, bank’s lackadaisical top management.

Unlike other PSU and PSE (Public Sector Enterprises), PSU banks scope of work are diversifying over the years and focused more toward Social causes and same should never be questioned because it’s always promoter who decides where to foray and whom to cater but if personnel engaged in the execution of said role are fulfilling the task and making government’s launched scheme a mega event in a very short span of time, they should  be treated at par unlike pawn on chess board, often used to make moves and die for king in case of check-mate. Over decades whether government ever questioned various loss making or lagging behind PSUs or PSEs what exactly they are catering and ever their pay analysed like ITI ltd, power distribution companies, even railway employees are paid bonus despite its pathetic performance and loss incurring but their pay and perks are timely revised like recently 7th pay commission has revised their pay. Even financials of Air India and its staff package over the decades has been never questioned by the Government.  All should be paid as per their eligibility as a standard rule in society but who cares the double standard adopted by the government against the bank employees. Here banks union leaders blow their own trumpet before the staff, how they managed the negotiation with the committee which was not ready for hike. Over the year banks uni on have lost  their identity and their effective role in the organization due to employee’s lack of confidence in them consequently their lachrymose presence in the banking industry symbolize the role of opposition or better I say congress party currently.

Government’s initiative to revise bankers pay at par with central government employees is still awaited and should not be compared to private sector banks who frame policies for income generation not for achieving social objectives as primary goal and same can be easily analysed through available database who are the top ten banks in terms of Aadhar seeding, PMJDY a/c, APY and other government sponsored scheme.


Conclusion

Banks have been epicenter of economic growth because of their contribution for supplying credit to all verticals of market and from consumer to manufacturers or suppliers, upliftment of society by fulfilling its financial and banking requirement and by transforming saving into capital or investment. Our banking system has huge potential and main pillar i.e. human resourses, bankers are not pawn and is in utter need of nurturing, motivation because morale of bankers is all time low, presence of candid leaders in top managements instead of laggards is need of hour. Government’s initiative to streamline their package in the line of pay revision of central government employees is required. Instead of hunting for only wrongdoers among banking fraternity, time has come to acknowledge the contribution made by bankers in society and making government sponsored scheme a mega event in a very short span of time.


Author

Praveen Kumar Srivastava
Senior Manager & Financial Analyst (Faculty)
SPBT College
Dena Bank, Mumbai