Is it time for redemption for Indian Banking System

Indian banking system is a sad story. We have one of the largest concentrations of government dominated banks around the world. India has also a rigid and strict regulatory system for banks. Such is the inscrutably of the regulators that they encourage cheap and bulk loans to large corporates but should such big people try to own banks, it is frowned upon. Customer service is an alien concept to Indian banks, public or private. Convenience to the public is least of their worries as the penetration of formal lending is quite less giving them a God like status.

It is no wonder though that a parallel economy exists in India right under the nose of well-heeled bankers and regulators. They act as enablers to this system, fostering an economic activity that forms most of the financial transactions in the country. Indeed, India being a cash-oriented economy is largely due to indifference and lack sided attitude of banks.

People prefer to keep cash at home than banks even though the government owns more than 25 banks. To go to a bank for a transaction is often a nightmarish task which often involves a lot of paper pushing and frustrating delays. The situations at private sector banks are no good either.

Anyone who has had a chance to look at the NPA statements of banks can see how carelessly they have handled public's money. It's like there is no method or logic to the way credit was extended to the chosen ones. Bad loans are surmounting by each passing quarter even though the economy is growing at a steady space.

Thus, Prime Minister Modi's step to demonetize currency notes of 500 and 1000 rupees is a God sent opportunity for the banks to reform. Ideally, it should have been their job to move the country to a cashless society. But instead of them, it is the Prime Minister and the Minister of Finance, who are doing all the pushing. From Jan Dhan Yojna to Demonetization, it is all the will of the leadership being executed by the banks. And they have to do that.

After all, the leadership is pumping in hard earned money of the public (around 25,000 crore rupees this year alone) into banks as equity so that banks can keep up their hobby of distributing bad loans, encouraging borrowers to not pay and flush more people money in the toilet. They have already written off thousand of crores which were owed to them by wilful defaulters.They owe the political leadership that much to follow their plans.

But the queues to change currency notes and deposit money in banks could have been much shorter had the banks done a decent job at their own end. Had they promoted digital technology for payments or made people aware about alternative means, people would not have been carrying so much cash anyway.

The huge surge in deposits is, therefore, an opportune moment for banks. They can be reborn into a lean and mean financial institutions dedicated to all segments of society and not just the super rich. This would do well to diversify their client base and make good business sense too.


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