oppn parties Big Banks Will Need To Be Leaner And Better Governed

News Snippets

  • The government says Covid-19 is still in local transmission stage in India
  • Government scotches rumours of extending the lockdown beyond April14. Says no such plan
  • Centre asks states to give shelter and food to migrant workers to stop them from taking to the streets
  • RBI cuts repo rate by 75 bps, the steepest in 10 years
  • Centre writes to states regarding laxity in monitoring people who had arrived from abroad between January and March
  • Kerala reports a spurt in new cases
  • With 124 fresh cases on Friday, the number of reported cases in India stand at 854
  • Five of a family, including a 9-month-old-baby test positive for Covid-19 in Nadia district in West Bengal on Friday
  • The Pakistani army is reportedly forcibly moving all Covid-19 patients to PoK and Gilgit
  • Untimely azaans in J&K mosques spark panic gathering
  • Stocks rise - Sensex up by 1400 points and Nifty goes above the 8600 mark
  • Rahul Gandhi says the economic package is "the first step in the right direction"
  • The government announces wide-ranging measures to help the poor overcome the economic hardship caused by Covid-19
  • G20 leaders to hold a virtual meeting today to explore ways of fighting Covid-19 in a coordinated manner
  • The Delhi government orders testing of all medical staff after the positive test on a Delhi mohalla clinic doctor
Death toll reaches 27 as Covid-19 cases across India reach 974 on Saturday
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Big Banks Will Need To Be Leaner And Better Governed

By Sunil Garodia

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator. Writes for a number of publications.

The government has rightly taken a decision to merge some PSU banks to create bigger, and hopefully better, banks. This magazine had been the first to cite sources to report that a mega merger of banks was on the cards over a week ago. But a merger of banks can only be successful if several other things are streamlined. Smaller banks have lesser checks and balances but serve a purpose in catering to regional areas and small businesses. But with a plethora of banking licenses issued now and a host of NBFCs catering to such needs, they have outlived their purpose. Bigger banks with better checks and balances and stronger balance sheets can focus on big projects and evaluate the risk factors in a better way. They can be more competitive, locally as well as globally, and can benefit from economies of scale if the problems of overstaffing, multiple branches at close-by locations and decision-making inertia are taken care of.

The government has announced that it will allow banks to appoint chief risk officers at market-linked remuneration. This is a step in the right direction. But if banking is to be taken to greater heights, market-linked remuneration has to be offered to all. The additional revenue outgo on this account can be neutralized if staff strength and number of branches is reduced. But bank unions are very vigilant and will not allow this. Hence, the most important thing now is to bring the unions on board.

The other thing to be tackled is related to technology. Banks in India use two platforms for core banking and merging the platforms is very difficult. The SBI and some other banks use TCS developed BaNCS while the Bank of Baroda and some others use Finacle developed by Infosys. Although the government has taken care to merge banks on the same platform, going forward, the need is to have a common tech platform for all banks.

The government must also tackle the decision-making inertia that has gripped PSU banks due to big loans going bad and the needle of suspicion pointing to collusion by bank officers. Some senior officers of many banks involved in major scams have been arrested too. This has made even senior bank officers fearful of taking decisions. With the state of the economy, big projects are also not being planned. Rajnish Kumar, the Chairman of SBI, has said that the reports of liquidity crunch in the banking sector are not true as the SBI is willing to lend up to Rs 1 lakh crore but there are no big borrowers. This is a problem that can only be solved if demand for goods and services rises and entrepreneurs plan big projects. But creating big banks, streamlining risk assessment processes and appointing risk officers will ensure that the banking system will be ready for lending to entrepreneurs when they plan big projects as and when demand picks up.