Thursday, September 09, 2010

Indian banks have to grow at home and abroad

Finance minister Pranab Mukherjee speaking at the 105th anniversary of Bank of India on Tuesday said while Indian banks have done well on the home front, there is a need for them to become globally competitive and carve a place for themselves on the international front. On the same day, Reserve Bank of India governor D.Subba Rao said that pay of the chief executive oficers as well as that of employees of public sector banks (PSBs) should match with those of the private sector banks. He was underlining the fact that this was the only way to attract and retain good talent in the PSBs. Both Mukherjee and Rao are looking to make Indian banking to lead the country's economic growth. It is axiomatic that a growing and expanding economy like India would need the ballast of a strong and healthy banking system. The feel-good factor of two years ago that Indian banks were not blown away by the financial crisis in the US and Europe is now giving way to the challenges and opportunities lying ahead.
Mukherjee has also talked of the goal of reaching banking facilities to all habitations with a population of 2000 as part of financial inclusivism and exhorted the banks to meet the target in 2011. It might seem that banks cannot become competitive if they are burdened with a social mandate like rural outreach. But it is not necessarily so. The rural sector remains an untapped financial resource and banks cannot afford to miss it if they are to expand profitably. That is one part of the next stage of the growth story. The other is that of expanding in the world at large. Mukherjee had a point. He has hinted that Indian banks with their best practices of prudence should be able to win csutomers and clients abroad. India's growth as an economic power will not peak unless it wins spurs in the international arena.
Is this an unrealistic goal? Is it too ambitious? It is not so. As a matter of fact, India cannot afford to be diffident any more, whether it be manufacturing or the services sector. Financial services can be turned into an Indian strength. This would mean that the old inhibitions have to be dsicarded. For example, the two main Indian private banks, the ICICI and the HFDC, cannot be treated as foreign banks because the majority of shareholders happen to be foreigners. As Indian banks, whether public or private, reach out they are quite likely to have a majority of non-India shareholders and even depositors. It should be seen as a positive development. Indian banking sector has to expand both inside the country and outside because that is indeed the potential.

No comments:

Democracy and its discontents

Narendra Modi, Lalu Prasad Yadav and Kanhaiya Kumar present a coarse populist side The loudness and coarseness of the Lok Sabha...