Time for Indian banks to get truly inclusive-Business Line
MUMBAI, NOV. 14:
The theme of the 34th Bankers Conference (BANCON) in Mumbai on November 14 and 15 is ‘Bank of the Future – Gearing up to Meet the Emerging Environment.’
Bancon, formerly Bank Economists’ Conference (BECON), has over the last several years been an occasion for top bankers to get together and review the main challenges and opportunities for the banking sector. It has been an occasion to share notes and experiences and rethink strategies for many of them.
The banking sector is critical for a well-functioning economy, especially for a country like India that faces challenges. Given the kind of growth and investments that are needed to pull 500 million people out of poverty, Indian banks have a crucial role to play — both in financing the real economy and also ensuring that the distribution of affirmative action plans reach the most deserving recipients.
NO NEW CHALLENGE
This is not a new challenge. Banks and the Government have been grappling with it for the last six decades and more since independence. Different strategies have been tried — experimenting with social control, nationalisation, priority sector mandates, liberalisation, tighter licensing of new banks and tougher norms for branch expansion, followed by some more loosening. All these have been tried over the past few years and with mixed results.
Banks have no doubt expanded considerably in the last few decades and more people have been brought into the banking fold. But it has also shown that despite the considerable progress made by the banking sector in the last few decades, there is still a long way to go before one can say that the financial system has become truly inclusive. While the needs of the economy have grown, the response of the banking system has not always been uniform or appropriate across the country. Very often it has tended to be concentrated in a few top cities and metros.
In fact, the top 10 cities account for more than half the deposits and credit in the country. To highlight the point about concentration of banking facilities in a few areas, take just a few statistics from the Reserve Bank of India. The proportion of rural branches in the total network of bank branches was as high as 57 per cent two decades ago. That has now fallen to 37 per cent, and this is despite the strong regulatory push to open newer branches in rural areas. In the same period, the level of deposits sourced from rural areas fell to 9 per cent from 15 per cent, and the level of credit flowing to rural areas dropped to 8 per cent from 18 per cent earlier.
RURAL BRANCHES
Banks have experimented with the business correspondent model to make up for this. According to the RBI, banking outlets in villages have nearly quadrupled over the last three years to 2,68,000 in March 2013. Despite this impressive bit of statistic, no bank has yet made a dent on the rural side of the business, and they continue to be in search of the elusive grail. Given the focus on inclusion and reaching out to the poorer sections, how banks deal with these issues will be crucial for their employees and shareholders — especially in an environment marked by industrial slowdown, high non-performing assets, lack of retail customer confidence, and other challenges such as a tighter regulatory environment and higher competition.
Banks will have to battle on many fronts simultaneously strengthening their risk management capabilities, while also raising sufficient capital to meet the new capital adequacy norms over the next few years. Some of these requirements will constrain growth unless banks learn to become more efficient with their capital and begin a determined effort to curtail wasted resources on non-performing assets.
TECH INFRASTRUCTURE
They will also have to scale up their technology infrastructure and their human resources to meet the needs of a newer and younger customer base.
The topics for the various sessions such as - building a customer centric retail banking model; cracking the SME riddle; accelerating infrastructure financing to boost economic growth; digital strategy to tap multi-channel behaviour reflect the challenges that banks face and the priorities they need to fix.
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