The State of Banking in India!

What is the role of a Bank?

Accordingly to a Publication of Federal Bank of San Francisco, Commercial banks play an important role in the financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner. They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities. These financial services help to make the overall economy more efficient.

I believe this should be true for all commercial banks, simply they borrow money from section of the society/economy and lend to another and they make money only when they lend as borrowing is a cost the interest charged on lending is the revenue for any Bank.

This simple paradigm seems to be forgotten today by the banks/bankers in India in the last 18 months and across all spectrums the bankers are dragging their feet and not making any lending decisions. All they are doing is beating around the bush and burying all proposals in piles and piles of paperwork without concentrating on the real value in any proposal.

The entire Economy today has slipped down and the growth is at an all tie low, due to the liquidity crunch brought about first by demonetisation and then by the bankers who went busy in sorting out the NPA's and forgot that they needed to lend in order to keep themselves functional and more importantly the economy running. Result of which is for everyone to see!!!

Now, we are in a vicious cycle, the Economy has tanked and so most businesses have taken a hit resulting in more NPA's and defaults and at the back of these rising NPA's/Defaults and bankers busy in recovery, they have become over cautious to a point, where no lending seems feasible in their head, thereby making availability of finance even more difficult and liquidity in the economy ever so critical.

This combined with the overreach of the government agencies in tightening the noose on the bankers by slapping them with Show Cause notices, stopping their pensions, charge sheeting them and even having the likes of CBI etc investigating potential cases of frauds and corruption in lending has meant that no banker today wants to sign on the dotted line and make any new enhancements and sanctions specially in the Public Sector banks, which still form the majority of all bank credit in India.

The genuine businessman who needs funds to expand his business is suffering dearly in the middle of this self imposed crisis.

• How can the government/RBI/Banks themselves form policies considering that every borrower is a potential fraud?
• How does a few fraudulent businesses dictate the poilcy making?
• How does the mistakes of a few define how everyone in the country will be treated?

The agencies must answer these questions and introspect each poilcy decision whether written or conversational which has ;ed to this sentiment of fear in a banker that today all he/she is bothered about is saving his skin and has forgotten his job, which was to lend and lend efficiently to all potential customers whether Retail, MSME's, Corporates, Start Ups et al.

There are enough funds available in the banking system however, there is no one on the ground level working on disbursing those funds to potential borrowers and this needs to change and change quickly enough, if we need this Economy to get back on its feet.

The past few months the sentiments I have heard from the bankers (higher up in the value chain) are reproduced as follows:

- "Our risk taking ability is not even 1/10th of what it was couple of years earlier"

- "Ham to bhagna chahte Hain, hamare pairon mein badhiya Dal Di hai to ham kya Karein"

- "Sarkar hamare se sirf social schemes per hi Kaam karvati rahti hai, to business ko kaun dekhega."

- "Upar se a bahut pressure hai....aur agar koi loan kharab hota hai hi char panch sal ke bad bhi to bhi uss adami se poochhtaachh Hoti hai jisne woh sanction kiya tha....."

- "The auditors come so rigid that they grill us for every note and every signature that we do you so we are fed up answering them and hence everyone is choosing to do work only under specified guideline and procedure without any deviations or use of discretion."

Just imagine, that if this is the sentiment, How will banking happen????

I hope the government wakes up and takes notice and immediately take steps to boost the confidence of its Bank force which needs to take active/ aggressive decisions to boost liquidity in the system and kick start the Economy!

About the Author

The Author Parmeet Singh Sood, is an Entrepreneur, Consultant, Public Speaker, Author & Trainer with primary business in Automotive Components manufacturing and a member of various Industry bodies and associations like CII, ACMA, MIWA, YBLF etc and has gathered the above from his various interactions with various PSU/Private Sector Banks and Entrepreneurs across the Industry spectrum, who are facing the same issues at the hands of the bankers.