Amidst the challenges, a lot of hope

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: be able to bring CRR down to zero. But RBI has been raising it to curb inflation. Today it is at 9%.’’

MV Nair, chairman and managing director of the state-owned Union Bank of India, feels the public sector banks need to undertake some internal restructuring in these volatile and uncertain times.

Says Nair: “This is a time to introspect and restructure the banks’ traditional growth areas. Banks need to cut costs to protect their balance sheets and provide cheaper credit to SMEs and the priority sector of the economy. This is difficult but possible. Right now we are talking about difficulties faced in this particular area and growth slowing down to 8% from 9.4%. But I am sure we will enjoy high growth for next two decades.”

Nair adds that public sector banks might have lost 10% market share after the entry of new generation private sector banks, but they have changed fundamentally in every parameter including non performing assets, profitability and efficiency ratios.

“We are functioning in a high competition atmosphere and the current situation, where banks are facing pressures on their balance sheets, only create a conducive atmosphere for consolidation,’’ he observes. Nair’s bank was, till recently, talked of as a prime candidate for a merger with another leading public sector bank.

Bankers are doing some plainspeak too. Elaborating on the course of action for private banks, Rana Kapoor, managing director, Yes Bank says: “I think private sector banks have a red flag, a huge red flag, because they have to be extremely cautious. The time has come where prudence must be exercised by the banking industry. At the same time, we should also fund industries and infrastructure, upgrade the systems. That is the business that requires skills. At the end of the day, what we need most in retail is a good financial solution. We need a deposit solution but don’t need aggressive lending as aggressive lending has already been spoilt a lot in the market. We just can’t take this for granted as has been the practice in the past.’’

As the banks grapple with these challenges, the stock market has been keenly watching their performance. Of late, bank stocks have been hammered in the markets as they are seen as a proxy for the economy.