RBI in its first announcement dated 27th March 2020, consequent upon corona pandemic 2019 had come out with various initiatives such as reduction in CRR, Repo Rate etc. thus to improve upon liquidity position of the banks so as to facilitate for extension in credit thus to revive the economy. At the same time moratorium was granted in order to arrest slippages & downgrading of credit rating of borrower accounts which were performing as of 1st March 2020.
Now RBI has come out with additional measures on 17th April 2020 for the second time within a period of less than a month with an announcement for further relaxation in NPA norms and to discourage for parking of surplus funds with the banking system with RBI by reducing Reverse Repo Rate by 25 basis points. Further RBI has infused Rs. 25,000 Cr in NABARD & Rs. 15,000 Cr in SIDBI & Rs. 10,000 Cr in NHB thus to facilitate for refinance to be extended to direct lending institutions which is expected to encourage for extension of credit to core sectors such as agriculture, SSI, housing. RBI has come out with focused initiatives for NBFC’s to bail out them. RBI expects to have culminating effect in economy in its revival.
All RBI policy prescriptions are well intentioned and good at its place. Today, banking system is flushed with funds and has surplus of about seven lac Cr. There is no credit off take. This will take place only after revival in economy which is possible only after lifting of lockdown which in turn is possible only if corona pandemic graph declines. Even if lockdown is lifted situation is not likely to improve upon overnight. People have gone in deep shock. They are scared. Public life is disrupted. Trade, Commerce & Industry has come to a grinding halt.
Normalcy can start by creating confidence in the minds of common man for which government need to act on various fronts simultaneously. First and foremost is strengthening of public health system for which government will have to invest hugely. Government will have to come out with policy prescriptions to create confidence with the migrant workers, outsourced employees, casual workers & contract workers. Simply giving them some financial assistance cannot be the solution. Alternative model needs to be evolved by giving them security in job and fair wages which may result in enhancing cost of production or services but will help in evolving sustained model in absence of which system is inviting great risk of faceless mob which is a great threat since majority of them are not organized. All of them are not only labour but consumer too. This will help in picking up the demand for essentials.
As far as revival in credit is concerned revival of economy & revival in overall banking is the precondition. Banking is virtually standstill not only because of the economy but also because of confusion in the minds of owners of public sector banks i.e. government. Since last 5 years role of PSBs has undergone a great change. To begin with government came out with the initiative of Jan Dhan, followed by it issuance of Rupay Card and Aadhaar seeding, followed by it with the implementation of all social sector insurance schemes, followed by it implementation of Atal Pension Scheme, followed by it implementation of Pradhan Mantri Awas Yojana, followed by it implementation of MUDRA scheme for educated unemployed. In addition to this all governmental schemes such as stand up India, make in India, implementation of GST etc. is centered around banking only. All the payments, government subsidies to be made through banks is made mandatory. All this has resulted into huge pressures on the banking system. In the intermittent period banking had to face disruption on account of demonetization and merger of banks in three spells, initially merger of associate banks with SBI followed by it merger of Dena & Vijaya Bank with Bank of Baroda and now merger of ten banks. Banking had to pass through race of hurdles. In the process banking is disorganized & has distracted. In the process banks have lost their character of commercial banking but have become extended hand of the government.
Merger of public sector banks is a major shift in policy leading for structural changes which will take at least one year to integrate those banks. It is not only a change in nameplate but each bank has its own history, geography and culture too. Integration of technology and manpower is also a great challenge. Thus, this consolidation has distracted the banking and it will take minimum one year to comeback.
This is the period during which consequent upon Asset Quality Inspection by RBI, manifold growth in NPA has taken place, resulting into huge losses to almost all PSBs due to huge provisions for NPAs. As per RBI guidelines in all big NPA accounts complaints with the CBI have been lodged resulting into hunting of various top management officials, many amongst them have been made scapegoats. This has resulted into demotivation and thus bank officials are aversed to take decision which has resulted into low credit off take.
Despite computerization & alternative delivery channels footfall in the bank branches continue to be on higher side due to enhanced role assigned by this government to the banks. On the background, almost all banks everywhere are facing acute staff shortages thus are not able to function full fledged but Bankers nor is government in a mood to address the issue. Therefore for all practical purposes banking is crippled. All those ground level issues need to be addressed to put the banking on track. Now potential for the banking is at the bottom line of pyramid for which bank branch can be a focal point & certainly not at the top i.e. big corporate. Thus banking can be revived only if branches are strengthened by providing support to them such as manpower, technology etc.
On the background of this crisis in banking now banks are required to combat with the post corona pandemic 2019 situation, is really a great challenge and tough task.
Now government and RBI have become impatient in enhancing the credit and may be in the process they want bankers to compromise on quality of credit without saying so in those words which will drag the industry once again in long term risk. In the present environment it is very difficult to expand credit by adhering to credit rating & risk management template but then for deviations bankers have to pay the cost which already they are paying. Why for?
Today banking department bureaucrats are running the banks through handful from top brass of the banks who are concerned mainly with their posts and position i.e. their own future & certainly not with the future of banking or economy. In order to revamp banking, genuine involvement of all stakeholders is necessary or otherwise all concerned will try to fool each other & in the process the present crisis will perpetuate further which neither banking nor economy can afford at this crucial juncture.