Riyaz Ahmed Bhat
Banking in India has been offshoot of British banking model and over a period has developed into its own contours having distinct image and unique problems. These problems have been studied many times and solutions have been suggested by various expert committees at different intervals. However these committees while suggesting the solutions for Indian banking sector have relied on importing solutions from other regions of globe. However, such measures instead of providing solutions have complicated the mess prevailing in the sector. This is because such committees usually consist of people who have earned their degrees by studying economies of countries not more than size of Uttar Pradesh or Maharashtra. So to have an indigenous pragmatic solution of the problems of banking sector one has to go deep in understanding the functioning, structure and deficiencies of banking sector which is need of the hour. We all may agree that traditionally in India banking regulates the flow of wealth in the financial system of the country. Also the Government has been addressing the vast section of population through banking by reaching out to their demands of providing capital for furtherance of their economic objectives or giving an opportunity to earn on their surplus wealth as deposits. Banking has been coming to rescue of masses during the crisis periods caused as a result of various natural calamities like floods, earth quakes or other vagaries of weather besides other manmade disasters like conflicts or social strife. Banking in this country also has remained a hope for underprivileged/neglected sections of population who have been given to access to much needed capital supply for self employing or employment generating concerns hence ensuring economic independence of vast population from exploitive unregulated money lender system. Hence the banking has been an important contributor in national economic development of the country. Of late, the banking also has been functioning as a delivery channel for the Government to implement various programmes of economic development intended to alleviate poverty from the country. This includes the delivery of subsidized credit or encouraging developmental agenda of regulated distribution of credit to various economic sectors. This role of banking has been pivotal and to strengthen this role Government has felt encouraged to include more initiatives for delivery of its services through banking. This is because the efficiency of banking system in India has found no parallel in governance structure of other Government agencies.
The fragmentation and segmentation of banking in India has remained a complex structure to regulate and supervise. The segmentation includes commercial banks, cooperative and rural banking structures. Amongst these only commercial banks can claim of having a pan India presence catering to every type of clientele in their fold. The new phenomenon in a post reform period has brought numerous changes in working of banking in India wherein the new generation private sector banks (PvtSBs) have entered the scene with many expectations. After the initiation of reforms in 1990 the new PvtSBs felt that having an edge over technological intervention and professionalized work force they can snatch away the traditional clientele of older players like PSBs or old Pvt SBs. However after so much time still the Indian banking space is covered by PSBs to the tune of 70 percent and in the remaining share a major chunk of population is served by old PvtSBs and community based Cop. Banks. To study the Impact of new pvt sector banking one has to study the branch expansion and clientele segregation in banking. In this study, it is found that these banks have been trying hard, through aggressive marketing campaigns, to lure away the selected clientele of other players. But their success is limited to urban and semi urban pockets while as they have miserably failed to have an impact on the rural landscape. Furthermore the segment wise study reveals that these banks may have been successful in luring the tech savy upper middle class population by deliverance of efficient service through technological solutions yet traditional trader class has remained loyal to older players of the industry.
This is because that this class has been habitual of enjoying free banking services and is conscious enough to avoid paying the costs of banking services provided by these players. Presently the older players of the Indian banking are burdened with own set of problems like increasing Non Performing Assets, ever increasing losses, demand for recaptilising funds, non introduction of technological solutions resulting in inefficient delivery system compounded by policy paralysis at higher level. However, despite these set of problems changing face of these players cannot be wished away or ridiculed. Long before in the year 2007-2008 under campaign Pragati (Progress) and Parivartan (Change) the SBI sent a message to industry watchers that the Indian Public sector Banking is quite responsive to the changing environment. However this momentum could not keep pace in other PSBs. Furthermore it also cannot be undermined that Government, as owner of PSBs, has to enforce changes in its governing structure so as to provide an ecosystem for encouraging a change of face for them.
As we all may concur that banking in itself is a barometer for performance of economy of a country and its changing face is dependent on changing face of economy because the demands of beneficiaries or stake holders of economic development dictate the growing changes of the banking sector. Also the banking sector always responds to these demands and hence evolves over a period to keep pace with expectations of the users of its services. In present environment the usage of technology by the modern banks has reached to higher level wherein we observe that new generation PvtSBs are not only moving to usage of digital platforms for offering banking services but are also using artificial intelligence to bring down the transaction costs. Furthermore the usage of mobile technology by the population has forced the evolution of payment banks which are playing important role in financial inclusion launched by Government.
This symbiosis of technological partners and banks is to cause timely disruptions but is unlikely to affect long term business strategies because age old model of banking of accepting deposits for purpose of lending will remain unchanged. There are emerging changes wherein banks have diversified to compensate reducing interest incomes with fee based incomes earned from marketing of third party products or providing of revenue collection services on behalf of Government or its agencies. This changing face of Indian banking is likely to emerge with new set of complexities and problems in future for which new set of regulations and supervision will be required.
Presently it is widely concluded that Indian economy is conglomerate of several regional economies hence a single regulated uniform national model is not going to satisfy the requirements of its regulation. In the same way it is also opined that requirements of Indian banking users spread over various varied geographical regions alongwith segmentation in various groupings and cultures need a compartmentalized regulation and supervision. Under these circumstances the viable option remains that problems emerging with changing face of Indian banking are to be dealt as per our own understanding with due regard to our traditional business practices enshrined in our cultural ethos.
(The author is Secretary General Jammu and Kashmir Bank Officers Forum)
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