Commercial Banking: Misery led by Chaos in Policy, Separation is the Solution

Mr. Vijay Kalantri, President, All India Association of Industries said that AIAI  is a premier Chamber of Commerce , an apex body  representing the trade, industry and employment since 1956 . It is a think tank established to suggest government about remedial measures in the changing economic scenario.

In an era of broadminded banking culture the Indian Banking System essentially the Commercial Banking sector is misery led by Chaos in policy.

He further added that there is chaos in the entire value chain right from the recruitment policy to the lending policy . If the recruitment policy right from the Board to the lending officer was in place, then there would have been no dearth of talent driven lending policy culture in the Commercial banking sector.

One should look at the risk factor in the commercial banking scenario and post this assessment  a favorable policy architecture could be developed. However the Indian commercial banking sector is treated on par with the lowest risk rated savings banking scenario.

Thus there has been no divergence from the savings banking scenario inspite of the Indian Banking come of age to have been in spate to apply the Basel 3 norms to the e Banking taken as a whole. This has led to lending capital and liquidity squeeze which major portion lying as a reserve which could be possibly lent at a lower rate to foster growth in industry.

But who will bell the Cat ? is the question which has never found an answer as far as Indian COMMERCIAL banking sector is concerned.

Maximum risk gives maximum returns is the fundamental principle however in the Indian banking culture Maximum risk yields minimum returns . The RBI has never thought of classifying the Commercial Banking sector with a risk based assessment in true sense and if it had truly done then there could have been zero policy of applying huge interest rate regime .

Prudence should be in seeing a sector in microsense however the RBI has always spread the risk and earned returns for itself instead transferring the same back to the  commercial borrowers who have actually borne the risks of inflation , global slowdown,inflation, bureaucratic policy shocks , wage rise, attrition etc.

This culture is mainly due to the serious inability of the hierarchies of office bearers across RBI who are totally averse to understanding such fundamentals owing to paucity of education in the field of business and its underlying architecture .

If there was a plausible divergence in handling the commercial banking sector from the savings banking sector than there would have been lesser debacles followed by deep economic unrests such as the Global slowdown or the COVID 19 .

A separate arm in place capable of making assessment based tailormade policy for commercial lending sector would have enabled to provide clarity on position of businesses large , medium and small in general and the systemic shocks that they are being affected with . And rightly define a strategy for their survival, revival and finally growth.

The case of separate regulator for commercial banking and the same to be separated from the present regulator i.e the RBI which was originally set up on fundamentals of lending to individual borrowers mainly for their personal requirements has an weak architecture  enough not enough to withstand the shocks of commercial banking.

RBI has miserably failed to understand the Commercial banking sector with in determinate , opaque  circulars pertaining to lending and most importantly lack of security and trust between the lending officials. The lending officers are first marred by inadequate knowledge of business on one hand and the various clauses of RBI Act which hold them responsible up to a possible imprisonment in case of lending decisions.

Thus the RBI control over the commercial banking sector should be finally should be done away which has dithered businesses on large scale . So much so that over 80% of the businesses seek lending from NBFCs who are structurally better off suiting thier requirements leading obsolete RBI intervention.

We hope are suggestions are taken in good spirit of development of the economy in order to boost its growth, said Mr. Kalantri.