PM Modi, Arun Jaitley & Raghuram Rajan to brainstorm with banking chiefs on new strategy for the sector

Source: Economic Times

The top echelons of Indian banking will converge early in the New Year in a Gyan Sangam or ‘Confluence of Knowledge’ at the National Institute of Bank Management in Pune to hammer out a strategy to revive the ailing state-owned banking sector, which is bogged down by a mountain of bad debt, political interference and lack of consolidation.

In attendance will be PM Narendra Modi, finance minister Arun Jaitley and Reserve Bank of India governor Raghuram Rajan along with state-owned bank chiefs and others. The bank chiefs will be ferried to the venue in luxury buses from Mumbai and Pune airports for the January 2-3 event, with the trip being arranged by the Centre for Advanced Financial Research and Learning (Cafral). Chairpersons and executive directors will ponder over state-owned bank reforms at the meeting.

“The finance ministry has given six topics on which top executives will deliberate and debate,” said a top bank official with direct knowledge of the matter.

Modi and Jaitley will join them on the second day when subjects such as priority sector lending, financial inclusion, human resources, consolidation, recovery mechanisms and technology are expected to be discussed. In August, the Prime Minister launched the Pradhan Mantri Jan-Dhan Yojana, a financial inclusion scheme to ensure that everyone in India has a bank account. According to the finance ministry, about 4 crore bank accounts have been opened under the scheme as of September.

Some executives have said this effort has been taking staff away from regular banking duties as they seek to meet enrollment targets under the scheme. Meanwhile, state-owned banks have been facing stress on loans made to the priority sector — agriculture, education and the under-privileged, among others. India needs to be clearer about the purpose that state-owned banks serve, said one former bank boss. “The government should first decide whether they want PSU (public sector unit) banks to make good profit or participate in nation building,” said Pratip Chaudhuri, former State Bank of India BSE 0.24 % chairman. “You cannot ask for expanding agricultural loans and then announce a debt-waiver scheme, crippling the recovery process.”

Bad loan recovery is a challenge and debt recovery tribunals need to be reformed, some bankers have said. Besides, political pressure comes into play when state-run banks try to recover loans. The gross nonperforming asset ratio increased to 4.5% in September from 4.1% in March, according to the latest RBI data. Many have staffing issues. According to an estimate by McKinsey India, 75% of the top management or those above the assistant general manager grade are due to retire by 2020.

At higher ranks, such as executive director and chairman level, state-owned banks are struggling with vacancies that haven’t been filled for some time. About six-eight chairman posts haven’t been appointed and several executive director posts lie unfilled. The Indian banking system needs to be consolidated to acquire global heft, experts have said.

The country’s largest, the State Bank of India, does not figure in the list of the world’s top 30. “A big number of banks should be reduced to stay competitive in the market. This will leave scope for operational cost rationalisation with the help of IT platforms,” said D Sarkar, former chairman and managing director, Union Bank of IndiaBSE 1.48 %. Meanwhile, parts of the country, such as the northeast, are poorly served in some ways. For instance, ATMs of state-owned banks don’t work there most of the time. “This itself points to technological lagging,” said a bank executive who did not want to be named.

of the time. “This itself points to technological lagging,” said a bank executive who did not want to be named.

of the time. “This itself points to technological lagging,” said a bank executive who did not want to be named.

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