Size doesn’t matter

Technology holds key to banks’ fortunes

The finance minister, Yashwant Sinha, has given a dressing down to public sector banks. Without mincing words, he has asked them to embrace technology if they are to remain in business. At a seminar in Mumbai last week, Mr Sinha exhorted bankers to look beyond the traditional strength of a huge branch network, to ways and means of using it for business development and profit maximisation. Indeed, no one will find fault with his advice, but the finance minister errs in comparing the lacklustre performance of nationalised banks with foreign banks. This is patently unfair and part of the blame for the sorry state of affairs must be laid on the government’s doorstep.
Unlike foreign banks, Indian banks have to meet several stringent norms, discharge a number of social obligations and their operational freedom is curtailed by political and bureaucratic influence. More important, foreign banks are largely urban-centric, therefore the burden of servicing the vast Indian rural population is still borne by PSBs. Though PSBs do have better reach than private and foreign banks in terms of superior infrastructure and a nation-wide network of branches, it would be unjust to criticise them for their errors of omission and commission during the protected years.

That said, it has been ten years since banking reforms were introduced — a period long enough to learn to operate in a freer environment. The performance of PSBs, judging by their accumulated losses and non-performing assets, leaves much to be desired. It is a sad commentary on this state of affairs when Indian banks function in a most archaic manner and resist change at all costs. All attempts to computerise systems have met with stiff resistance from powerful unions. Mr Sinha correctly points out that technology will be a major factor which will determine the fortunes of banks. The banking industry must come to terms with such realities. Without complete automation, banks cannot survive in today’s environment. At the same time, the finance ministry must ensure that bankers are given adequate powers to take key decisions independently. The fear of victimisation keeps them from taking calculated financial risks, so essential to run banks on purely commercial lines. The result: banks are saddled with idle resources without avenues for profitable deployment. And it tells on their performance vis-a-vis foreign banks.