HigHligHts of indian Banking ConferenCe – 2008 at ISB, HyderaBad

On 13th of June 2008, The Centre for Analytical Finance (CAF) hosted the Indian Banking Conference - 2008 at the Indian School of Business. Many senior bankers, financial experts, academic researchers, top officials and business heads from major Public, Private & Foreign banks operating in India & last but not the least, a good number of students from IMA Hyderabad participated in that conference.

The banking fraternity was represented by the RBI, State Bank of India, Axis Bank, Citigroup India, NABARD, Canara Bank etc. The theme of the conference was “Economic & Social responsibilities of Indian Commercial Banks and the possibility of a Healthy Compromise”. The Conference promised to address India’s changing role
in the new exciting banking landscape, and explore the myriad of opportunities that are evolving in this sector. Are there ways for the Indian commercial banks to achieve both objectives: performance and social responsibility? This was the question the Conference aimed to find answers to. It consisted of two panel discussions and a special address.

The first panel discussion on “Competitiveness of Indian Commercial Banks” had an eminent panel comprising Mr. OP Bhatt, Chairman, State Bank of India; Mr. PJ Nayak, Chairman & CEO, Axis Bank; Mr. Sanjay Nayar, CEO, Citigroup India and Mr. Joydeep Sengupta, Director, McKinsey & Co. The panel addressed several concerns such as how the performance of Indian banks compare to their global counterparts, what is the role of the Indian banking sector in the Indian economy at large, what are the concerns of the public sector banks, why does private sector have an edge, how do new banks compete with established banks, should banking be ownership neutral etc.

“Banks do not exist in vacuum. They make a large contribution to the country’s GDP growth, meet the demand of the growing middle class, contribute to infrastructure spending, and reach out the semi-urban and rural areas”, said Mr. Bhatt. He also stated that although public sector banks serve a number of social & macro-economic objectives like financial inclusion, agricultural lending, Govt. debt, stock market operation etc, but they are suffering from lower valuation. It is happening because of lower asset quality, lower productivity etc. “Public sector banks are inferior to their private counterparts in terms of customer service, proactive sales, world-class
operations etc. This is due to issues like inability to attract and retain best talent, union issues, and finally the ownership and operational issues,” he said.

Mr. Nayak shared his ideas that how the new private banks have gained significant market share by using technology for operational efficiency, superior sales & distribution channels and creation of mass outreach ATM services etc. In conclusion, he remarked that different ownership types have lead to different operation model, and it remains to be seen which business and operation model is most conducive to the Indian banking climate.

“Where does India want to take the banking sector as a whole?” was the question posted by the third panelist, Mr. Nayar. His presentation emphasized on the ‘scalability’ issue and its importance for foreign banks in India. He said “after food & fuel, the greatest shortage in India is Finance”. Foreign banks face many constraints like higher tax rates, no access to Govt. wallet, capital raising problems, regulatory framework for home & host countries etc. These things stand as barriers & obstruct their way to play an active role in the Indian financial industry.

Mr. Sengupta shared with the audience some of his research findings about how the sector has performed, how competitive it really is and finally the role of regulators and policy makers. “Indian banks have provided high returns to shareholders over the last few years. It is also serving the economy in terms of value creation and employment generation. The sector has improved on capital allocation, resulting in lower NPAs. However it still performs poorly in areas like access to finance. The loan concentration is limited to the four metros”, he pointedout.

During the second panel discussion on “Social Responsibilities of the Indian Banking Sector,” panelist Rajesh Chakrabarti, Assistant Professor of Finance at the ISB said that the social responsibility in the banking sector implies “stability, planned growth and equitable distribution of credit and growth of small industries and farming”. He also explained the barriers for wholesale financial inclusion like physical assess, eligibility, affordability etc.

Mr. Vijay Mahajan, Chairman, BASIX elaborated the main factors to assume financial inclusion like: private ownership, professional management, no cap on interest rates, commitment to local areas & also to focus on local community. He emphasised that “banks should be socially responsible, beyond the normal CSR, because banks are special and a high leverage businesses, and the deposits come from large number of small people. The failure of one bank can lead to system wide reverberations”, he explained.

Mr. K.G. Karmakar, MD, NABARD emphasized on the policy changes for the priority sectors, the need to redefine the role of rural money lenders, need for setting up Rural Credit Bureaus etc.

V.R. Das, Executive Director, R.B.I felt that deposit account is the gateway to financial inclusion & the approach is to connect people. The second thing he stressed on was the usage of multiple channels to expand outreach.

One of the highlights during the Conference was a special address on ‘Indian Banking Sector Reforms’ by Dr. Raghuram Rajan, Chair of Committee on Financial Sector Reform, Planning Commission; and Eric J Gleacher Distinguished Service Professor of Finance, University of Chicago.

Some of the recommendations he shared with the audience were –
i. Share credit information more widely
ii. Expedite the process of creating a unique national ID number with biometric identifications
iii. Encourage the local private banks since they have a good knowledge of the locality
iv. Increase the scope of foreign banks so that they can reach the masses
v. Allow liberal use of banking correspondents
vi. Liberalize interest rates that institutions can charge, ensuring credit reaches the poor
vii. Offer priority sector loan certificates to all entities that lend to eligible categories in the priority sector Throwing some light on the macro-economic frame work, Professor Rajan said, “Don’t expect the RBI to do magic.” He said that we expect too much from the RBI, and have innumerable and irreconcilable mandates. Thus the RBI is moving from one objective to another. “My suggestion to the RBI is to do one thing well at a time,” he said. The conference was concluded with vote of thanks proposed by Prof. M.R. Rao, Dean, ISB.


Special thanks to Raghu sir for his co-operation & guidance