Heading through the cutting edge of modern finances, sometimes policy makers tends for noble experiments with its existing businesses to break the inertia or status quo.
In recent quarters, banking industry and even the overall financial sector has witnessed upright positional shifts with unpleasant repercussions; reasons are many and it’s an open secret now but such eventuality couldn’t be easily surpassed through only following the cunning tactics instead to enlighten the knowledge of history and maximum avoidance of willy-nilly practices would be somehow more healing.
Banking consolidation in Indian context very much seems paradoxical, because Indian banking is too diverse to accommodate in single policy frame.
These banks are possessing numbers of inheritances in their own set of condition; for Regional Rural Banks (RRBs) consolidation has enhanced its efficiency but same can’t be true for other banks because of their distinct compositions.so, the foremost task should be to assess the overall nature of their structural and operational pattern and then strive for next innovations. India’s public sector banks (PSBs) including of RRBs were emerged through a very cautious deliberation to imparting banking facilities for larger masses under the vigilant regulation of Reserve Bank of India.
To a certain extant Indian banks have done commendable job in last four decades to penetrate through the requirements of institutional credit and remaining banking facilities in both urban and rural areas; despite this India is still a shabbily under banked country.
Banks are still lending less than half of as proportion to Gross Domestic Product, what a strong economy without exposing to hyper inflation should have; Indian banking here need to follow the basics, the same way in which it succeeded during recent downturns. On the operational side bank must choose to focus on rural segments where the maladies of private lending are still persisting; by appropriating a hassle free day to day banking practices and more rationalization of service charges from less empowered and under banked population.
Private sector lenders must also endeavor in similar way since the rural areas are still unexplored and they may be heaven of business in coming years; of course their expertise in local conditions rather than their size going to determine the pace of their success.
Today ensuring swift financial inclusion should be the top task before the government to keep the wolf from the door (Avoiding hunger); indeed that would need more meticulous exploitation of our own expertise rather than borrowing the abandoned outdated western ideas of banking consolidation.
United States President Mr.Barack Obama has recently reiterating his fear for unnecessarily big size of banks which creates hurdles in operational efficiency; in same manner top western economists including Joseph Stiglitz, who is known for his fair speaking, preaching the cautions to escape the loopholes of banks giant size.
Stiglitz has firm view that” banks too large to fall may also be too difficult to handle…crux of his opinion is to move in the direction of rationalization of policies as per the local conditions and requirements instead to lost in the unrealistic myopia of universal model to consolidate the banking business to its last extant.
Indeed, up gradation of services instead of size that going to help the banking industry at large…we have account of sixty nine bank failures in ongoing financial meltdown and countless bankruptcies of both institutions and common men’s through unrealistic experiments.
Failure of giant Lehmen Brothers that was many fold bigger in its size to India’s largest bank State Bank of India(SBI) shows us that true competency does not necessarily lies in its size…Indian banks are not crooks, so our brooks certainly
not spoil them.
Atul Kumar Thakur
Octobers8th2009, New Delhi