Magnum opus on the many ills of the banking sector

Magnum opus on the many ills of the banking sector

New Delhi, January 7, 2021

What ails public sector banks? The answer to this question lies in Tamal Bandyopadhyay’s "Pandemonium: The Great Indian Banking Tragedy". Bandyopadhya, with more than 25 years of experience in journalism, is an award-winning business columnist for interpretative writing and deals with the subject with the professionalism he is credited with.

“Tamal Bandyopadhyay’s magnum opus provides insights into the most important questions in Indian policymaking today,” says Krishnamurthy Subramanian, Chief Economic Adviser, Ministry of Finance in the Government of India.

Former SEBI Chairman U. K. Sinha, notes, “The breadth of knowledge and attention to details shown by this veteran economic historian and journalist make fascinating reading for anybody interested in the Indian financial sector. Tamal’s superb storytelling makes the book so gripping.”

As NITI Aayog Vice Chairman, Rajiv Kumar observes, “Tamal writes with honesty, based on hard facts and with no holds barred. Tamal’s real strength is his determination to dig deeper, put lesser-known facts on decision making in the sector out in the public domain without being unduly normative or judgmental about the persons involved.”

Published by Roli Books, the 522-page work of excellence on the great Indian banking tragedy, has a foreword by economist Bibek Debroy. “We have come a long way since the days of bank nationalization and bank failures. Nonetheless, there is a tragedy in the works and this is a wonderful book to understand that. Indeed, in some parts, it reads like a mystery,” writes Debroy.

Bandyopadhyay discusses the book in this e-mail interview with NetIndian.

Excerpts:

Q) Do you think the common Indian citizen has faith in the Indian banking system?

A) No, they don’t have. We have a repressive financial system where customers are exploited. Bank branches have become, for many banks, a place to market other financial products to earn fees than collection of deposits. Many have stopped going to branches for this! Of course, growing digitalization is also helping the customers stay away from the branches. Poor customer service apart, the state of affairs in a few private banks – in at least two cases in recent time, the Reserve Bank of India (RBI) had to put them under moratorium, before rescuing them – is also contributing to the masses’ disenchantment with the banking system.

Q) Your book has painted a bleak picture of the banking system. Realistically, can we expect a revival of this faith?

A) Things started getting better but the Covid-19 pandemic has dealt a blow to the system. We need to wait and watch how things pan out. In early March 2020, I would have said the worst is behind the banking system; the phase of bad loan recognition is over and the phase of recovery has started. But the pandemic has changed the math.

On the positive side, the system is resilient and the bankers have learnt their lessons. They will not make the same mistakes again. Most importantly, the RBI will not allow any bank to fail.

Tamal Bandyopadhyay
Tamal BandyopadhyayFile photo

Q) From a layman's perspective, can't the government bail out the customers by taking care of their deposits?

A) The government does not do this explicitly but no depositor in a commercial bank has lost one rupee in the past three decades. Whenever a bank has been in trouble, the RBI has rescued it. The investors have lost money; so have the long-term bond holders but not any depositor. Technically, up to Rs five lakh deposit per person is insured but in reality none has lost money. The cooperative banks are a different story, though.

Q) Why did the banking industry reach this loss of faith among the customers?

A) Poor customer service and lack of governance in some of the private banks, leading to trouble for themselves. Also failures of too many cooperative banks have played a role. The masses don’t distinguish between a commercial bank and a cooperative bank. There are exceptions but, by and large, most cooperative banks are a cesspool of politics and misgovernance.

Q) Your personal experience of reporting the deterioration even though you have dealt with it in the chapter "What Ails the Public Sector Banks"?

A) As former RBI Governor Dr Y V Reddy has said, “The problem is not with the government ownership but how the government behaves”. The public sector banking industry, around 65% of the entire industry (not too many countries have such a large government-owned banking system) is a socio-political instrument – and, not a business enterprise. There are many issues but the root of the problem is this.

You cannot run a bank the way you run Air India!

Q) What is the future of co-operative banks in the rural sector?

A) As you are aware, the law has been amended and the RBI is now actively involved in supervising the cooperative banks. In June 2020, the cooperative banks were brought under the regulatory framework of the RBI by amending the seven-decade old Banking Regulation Act through a presidential decree. But this brings Urban Co-operative Banks and Multi-State Co-operative Banks under the purview of the RBI while primary credit cooperative societies continue to remain outside the purview of the Banking Regulation Act, 1949. The story has not changed there.

Q) As a reader, if I ask you how best can I decide which bank to trust with my life savings?

A) You can trust any bank – among the government-owned and private banks – for keeping your money. No bank will be allowed to fail. Still, if you want to save yourself from the hassles of your bank being put under a moratorium and you’re not able to withdraw money, you can use your discretion for the old private banks –at least one of them is not well governed. This is just to avoid the hassles, however short-lived they are.

However, as I have said, you can trust any commercial bank – none of them will be allowed to fail and depositors will not lose their money.

An unsolicited advice is : Distribute your money among a few banks and among your family members (as depositors), keeping in mind the deposit cover (up to Rs5 lakh per depositor). That is, if you want to earn a bit higher interest (the big ones don’t pay you high interest). You don’t need to keep your life savings in one bank only.

NNN

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