Gyan Sangam –Banker’s Retreat Final Press Release with recommendations
Two day “Retreat for Banks and Financial Institutions” called “ज्ञान संगम” “Gyan Sangam” was graced by Prime Minister Shri Narendra Modi and Union Finance Minister Shri Arun Jaitley, Shri Jayant Sinha, Minister of State for Finance at National Institute of Banking Management (NIBM), Pune, Maharashtra. Participants in the Bankers’ Retreat included Dr. Raghuram Rajan, Governor Reserve Bank of India, Shri Rajiv Mehrishi, Finance Secretary Shri Arvind Subramanian Chief Economic Adviser, Finance Secretary Dr.Hasmukh Adhia, Secretary, Department of Financial Services (DFS), Regulators, Officers of the Ministry of Finance, top management of all Public Sector Banks (PSBs), Insurance Companies and Financial Institutions (FIs).
Dr.Hasmukh Adhia welcomed Finance Minister and apprised him of the proceedings of the retreat so far. He informed that the discussion groups have been asked to suggest the important action points for the short term (0 to 12 months) and medium term (13 to 36 months) separately for banks and policy makers. These six groups would then be combined into 3 presentations by the CMDs before the prime Minister.
Chief Economic Advisor Dr. Arvind Subramanian suggested ways by which the banking system can generate and efficiently allocate domestic savings to sustain the investment rate of 35% of GDP to achieve the growth of 8% in medium term. He proposed that the PSBs should be differentiated into weak, good and strong categories and accordingly consolidation and restructuring measures could be applied to them. There should be diversification both within and outside the banking system. There should be better bankruptcy procedures. The current overhang of stressed assets should be resolved by distribution of the pain between promoters, creditors and tax payers.
Shri Rajiv Mehrishi, Finance Secretary raised the question whether bank nationalisation has been able to achieve the objectives of reaching out to all people and expansion of credit as necessary. He urged that banks need to be healthy to drive 7-8% growth in GDP. Additionally to provide that magnitude of financing, the PSBs need to enhance their capital base. Non-Banking payment solutions like Mobile Banking could be used to reach out to poor people. This may help cashless transactions and thus reduce black money in the system. Government may take a relook at the legal system to deal with wilful defaulters.
Dr. Raghuram Rajan, Governor Reserve Bank of India, stated that banks need to channelize the full savings of the households into the financial system so that requisite financial resources for growth could be made available. He also stated that there is a need for internationalisation of the banking system in the current global environment. In the short term (from 0 to 12 months) he said that there was need to clean up the NPAs and then restructure other stressed loans so as to put the economy back on the track.
The Capital base of the banks may need to be enhanced. He emphasised for the need for consolidation in ownership, improvement in governance, and enhancement of management capability. He stated that with the licensing of the small banks and the payment banks there would be new players in the industry. The competition amongst the PSBs will also grow to meet these challenges. Accordingly, PSBs have to develop differentiated products.
The PSBs need to recruit young talent, train, and retain them. And that the Govt. needs to have a re-look at the campus recruitment which at present is banned because of Supreme Court ruling. Further, he advised that the bona fide mistakes made by the bankers while taking commercial decisions should be protected by the Govt. If the officers are hauled up for such decisions this would to lead to delay in good decisions because of avoidance of risk.
Hon’ble Finance Minister stated that this was a gathering of important people in the banking industry who have assembled at a crucial stage of our economy. The actual situation is that we are trying to bring about transformation in the Indian economy. In the past the rights were being conferred on people one after the other for which we did not have the resources. The result was a slowdown. The present Govt. has taken number of bold steps like Goods and services Tax (GST). The new Land Acquisition act that was passed by the previous regime had stalled development. The present Government has taken necessary steps to change this Act so as to revive infrastructure growth.
Risks have to be taken. The positives are that there is an element of decisiveness in the new government and there is large popular support for that. We have taken steps to increase both FDI and the domestic investment to give the big push to manufacturing sector. Excise duties collection was diverted towards to highway Projects to meet their financing requirement. Banks have a major role to play in the financing of infrastructure. Growth in power and other infrastructure sectors needs to be revived.
He stated that both he and Prime Minister would like to be acquainted about the challenges faced by the PSBs. They would like to know the answers to the questions as to how to get out of the stress created by NPAs and how credit growth can pick up. Government is willing to reconsider the rules. Government is open to bold decisions for professionalization of the management and autonomy in decision making, rewarding merit, and relooking at the recruitment process at the top management level of PSBs. The government was ready to protect commercial decisions so as to avoid the delay in good decisions.
He stated that Financial Inclusion through PMJDY was taken up in a mission mode. Most of the inactive accounts will become operational with the introduction of Direct Benefit Transfer (DBT).These account holders will become symbol of the identity of the cashless system.
Earliar, the morning session started with a talk by Swami Sukhabodhanandji on “Leadership and Change Management”. Thereafter, the groups made presentations about their discussions, findings and recommendations. There was a talk on financial architecture of MSME by Shri K.V. Kamath, who also headed a committee on the same subject.
Significant recommendations from the different Working Groups are summarized in annex A & B.
Annex A : Commitment from PSU banks
Differentiate strategic focus
· Re-orient portfolios for small PSU banks to differentiate, focus on specific niches to build capabilities and to optimise capital
Build people capabilities
· Invest in capability building and culture change
· Introduce effective performance management systems and incentives
Technology enabled transformation
· Digitise top 30 processes
· Deepen mobile banking penetration
· Big data and analytics
Strengthen risk management
· Establish rule based underwriting for retail and SME, create early warning signals and multi-channel collections architecture
· Move towards risk based pricing (RAROC)
· Create/strengthen credit bureau (rural, SME, corporate)
Introduce and strengthen partners/non-bank channels
· Provide infrastructure support (AEPS and Rupay enablement) and better manage BCs
· Explore new partnerships to reach the financially excluded
Annex B : 7 point reform agenda for the government
Move from state owned to state linked
· Adopt Nayak committee report: Establish Bank Board Bureau comprising professionals and eminent bankers to appoint and empower individual bank boards
· Set up Bank Investment Committee; transfer government investment in banks to BIC; overtime reduce government ownership to <51%
Fully empower banks on HR decisions – recruitment, consequence management and compensation
Create an environment to protect right decisions and minimize interference: Minimize CVC/CAG/CBI/RTI related issues
Strengthen and ensure implementation of legal framework – DRT/SARFASEI/willful defaulters
Strengthen and simplify processes for credit insurance (e.g., CGTMSE, housing)
Eliminate market distortions: debt waivers, interest rate caps (agri loans <Rs 3 lakh)
Enabling infrastructure for Digital Banking under Digital India
PIB Gyan Sangam Media Centre, Pune | DSM | APM