Banking on status quo

Context:  All models of bank ownership and governance have bugs and features

Issue with Indian Banks:

• Status quo in Credit to Gross Domestic Product(GDP) ratio: Stuck at 50% for ten years.
• Decrease in the number of scheduled commercial banks: It is lower than in 1947.
• High-interest margins.
• Bad loan: which have been over Rs 10 lakh crore for a decade.
• Weak competition for new banking business: Deposits and loan concentration has increased by only 70% in the last five years, which means that our version of “too-big-to-fail” is “too-few-to-fail”.

Challenges in dealing with the issues:

• The issues of uncertainty: g. all prescriptions are based on the best available data and will change as inevitable new evidence emerges or relationships change.
• Tyranny of technocracy: which prefer the impossibilities of democracy without politics and markets without business — is higher in social sciences like economics.
  • Nobel Laureate Richard Feynman wisely reflected that physics would be impossible if electrons had feelings.
• Wrong notions about the infallibility of financial institutions: with tiny shareholders, professional management, and boards that ban shareholders.
• Wrong perception and lack of trust on Indian entrepreneurs:g. equating all the entrepreneurs with Nirav Modi and Bhushan steel.

Way to fix Indian banking: Require both Skill and Luck!

• Skill comes with foreign banks and revamped Reserve bank of India(RBI): RBI should play higher game in regulation and supervision through organizational structure changes, specialization, performance management, training, and technology.
• Bring luck through inclusiveness: Shift Indian banking to being open, big and inclusive from its current closed, small and exclusive form.

Conclusion: As poet Ramdhari Singh Dinkar wrote: Kshama shobhiti us bhujang ko jiske paas garal ho (Benevolence only befits snakes that have venom), motivates for building big Indian banks as an important strategic priority when five of the world’s top 10 banks are Chinese.