Promoter (and ownership) clarity
PSU banks board is answerable to (and under pressure from) many; the Government, RBI, employees & officers associations and to people's representatives! As always, it is not easy to play tunes to all simultaneously, hence the set up of inefficiencies, which has gone to the extent of "riding the tiger" - can't get down or stop! But, the time has come to take decisive "actions" to script the revival (and turnaround) of "Goliath's" in the Financial Services sector (PSU banks) following the footsteps of "David's" (new Generation Private sector banks), adopting to the best strategies, ignoring the not-so-good's! The approach has to be top-down, thus establishing promoter - management clarity.
The suggestion to bring all PSU Banks under "Holding Company" model is welcome, subject to provisions of (RBI kind of) autonomous (and professional) band-width. There is also beyond forward looking suggestions to bring other Financial Services units of Life (and General) Insurance, AMCs, DFIs, ARCs etc., but would be prudent to begin with Banks before looking at holistic picture! The approach to bring professional excellence at Board executive management is the immediate need of the hour; the issue is not with the quality of manpower but the operational empowerment with strict enforcement of responsibility (and accountability) is critical, to begin with! The set up of 4-tier structure of Holdco (Capital management), Non-executive advisory Board (to devise policy guidance), Non-executive management Board (to monitor policy execution) and Executive Management Board (for delivery of set KPIs/KRAs) is seen as starting step towards "Operation Revamp India Financial System", which is seen as biased (and favourable) to the top-end stake-holders and risk-averse to the lower end of the pyramid to enforce push-triggers through Priority Sector and Financial Inclusion mandatory targets. The mantra is inclusive (and efficient) banking for extended coverage at enhanced productivity and efficiency!
Focus on productivity and efficiency to build valuation
There exists multi-focus business play in the Indian financial system. PSU banks operations are focused at "on-balance" sheet (risk weight) products; foreign banks' concentration in off-balance sheet (cross-border and global financial markets) products; private banks in mix of on and off-balance sheet products/services and regional level niche-products financial entities. In the last couple of decades, the business focus is enlarged to distribution business to leverage feet-on-street, brick-and-mortar branch presence and customer acquisition capabilities with the theme of "what you do not manufacturer, build distribution capabilities" (buy-and-sell model) to enhance infrastructure productivity for higher efficiency! It is high time PSU banks get focus on enhanced coverage (of products and services) to ensure higher growth rate on bottom-line revenue parameters over the top-line balance sheet growth parameters. PSU banks need to emerge as holistic financial services provider, improving efficiency in wholesale lending and financial inclusion.
Evolution of graded financial services delivery structure
RBI's agenda is seen to be for bringing the entire financial system into organised structure to ensure safety of public money and to enforce transparency (and good governance) in the system. The way forward is to set up graded structure of global banks, national banks, regional banks and niche banks. There is need to create handful of Global Banks (comparable in size and scale to top foreign banks) with capabilities to service large entities with cross-border requirements; decent numbers of national banks to cater to India-business centric entities; large number of regional banks to cover mid to small enterprises and national level niche banks with product specific focus for financial inclusion and payment & collection services. The agenda for banks' consolidation and creation of Payment and Small Banks are steps in this direction; post which, there may emerge opportunities for large NBFCs to get converted into national banks. It is also possible for the Holding company to build (and extend) ownership linkage from Global Banks to Regional Banks for better coordination for efficient service coverage. The set up of ownership linkage from Global Banks to niche banks with operational (and execution) excellence will not build valuation but also will lead to customer delight setting up fair (and level) play amongst different categories of Banks in the Financial Services sector; next step would be to allow Banks to manufacture financial products (and services) that they distribute now, so as to bring in regulatory control under one roof, cutting regulatory arbitrage between RBI, SEBI and IRDA. The job is begun, and now "gyaan" need to get translated to "kaam"!
Moses Harding
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