Editor's Letter: Reaching Out

In a recent interaction with a TV channel on the sidelines of the Davos Conclave, RBI governor Raghuram Rajan lashed out against promoters of debt-ridden companies for continuing with their lavish lifestyles despite owing thousands of crores to banks. “If you flaunt your birthday bashes even while owing the system a lot of money, it does seem to suggest to the public that you don’t care. I think that is the wrong message,” he said. He was obviously targeting Vijay Mallya, who recently celebrated his 60th birthday in style in Goa despite his defunct Kingfisher Airlines owing banks over Rs 7,500 crore.

What Rajan failed to highlight is that banks too are culpable for the rip off — either because of the lack of due diligence or plain collusion. The latest Financial Stability Report (FSR) of the RBI does not paint a very pretty picture. “The banking stability indicator shows that risks to the banking sector increased... mainly on account of deteriorating asset quality, lower soundness and sluggish profitability,” says the report.

According to the FSR, state-run banks, which account for nearly 70 per cent of the banking assets, held a humongous 14.1 per cent as ‘stressed’ assets. These banks are also hugely short on capital adequacy — estimates ranging from Rs 2.5 lakh to Rs 4 lakh crore as per Basel-III banking norms. The big question then is: how can these banks, responsible for recovery of the economy, ever fulfil their mandate, if they continue to sink deeper into the quagmire?

That said, the bigger picture is that of a growing banking system that is reaching out and empowering millions in the furthest corners of the country with farm loans, and credit for vehicles and homes. As of now, the system consists of 26 public sector banks, 25 private and 43 foreign banks, 56 regional rural banks, 1,589 urban co-op banks and 93,550 rural co-op banks. With the outreach of the PM’s Jan Dhan Yojana, by November last year 192 million accounts had been opened mustering deposits of nearly Rs 27,000 crore.

The 2011 census revealed that just 58 per cent of the 24.7-crore households in the country were accessing the banking system. There is deep realisation in the corridors of power that India is an under-banked country, and therefore, the need for greater inclusion through schemes such as the Jan Dhan Yojana.

Indeed, it is a challenging task for banks: To be part of the growth story and lend to companies driving sectors such as infrastructure; to empower the millions by cranking up their rusty lives with the elixirs of savings and credit; and then at the end of the day to make a healthy profit and recapitalise themselves for the next round of lending.

So which are the banks that have got it right? In the US, banks are rated to help the public gauge the good guys. One such site, Bankrate.com puts down four parameters for its 1-to-5 star rating system: capital adequacy, asset quality (extent of good and bad loans), profitability and level of cash available.
We don’t have ratings, but BW Businessworld did the next best thing: We devised a survey of the banking system for the best performing banks — for the large, mid-segment and small banks, and for the fastest-growing banks and so on — year after year; and so we are proud to bring you the 8th Edition of the BW Businessworld Best Banks Survey 2014-15 with PwC’s Knowledge Support. The vast coordination and communication for the survey was anchored by deputy editor Raghu Mohan.

The summary of the great reads in the issue will not be complete without recommending the analysis by staff writer Sumit Sharma, whether we are close to another 2008-style crash; and columnist Minhaz Merchant, who urges us not to write off China so fast.

(This story was published in BW | Businessworld Issue Dated 08-02-2016)