Rejoicing and rejigs as banks bid adieu to year 2000

NEW DELHI, DEC. 26. Hardly a year after the Y2K scare, the Indian financial sector was once again shaken by the forceful effort of "rightsizing" banks through the voluntary retirement scheme (VRS) and tabling of the Banking Companies Bill aimed at "diluting" state control to 33 per cent.

There were reasons for rejoicing after the robust first half results despite the industrial slowdown and the whopping $5.5 billion inflow from State Bank of India's India Millennium Deposit scheme that pulled up the rupee.

But year 2000 was marked by rejigging - targeting a 10 per cent reduction of eight-lakh strong workforce through VRS, recovery of at least Rs. 10,000 crores of the total Rs. 53,000 crore non- performing assets (NPAs) and giving "old economy" banks a facelift.

Consolidation was easy for tech-savvy banks as HDFC Bank, which took over Times Bank, and ICICI Bank that inked a deal with Bank of Madura, showed how to merge balance sheets without affecting their market value.

However, it would be an uphill task for public sector banks as no healthy bank would like to merge with an NPA-ridden bank and submerge its own growth prospects.

Government intends to open the 'Pandora's Box' by tabling the Banking Companies Bill although various strings of the sector viewed it with plurality of 'threats' and a deliberate effort towards privatisation process.

"Public sector banks are not being privatised. They will retain the PSE status," defended the Union Finance Minister, Mr. Yashwant Sinha.

Bank unions wondered how the PSE status can remain when Government becomes a minority share holder. It is a first step towards privatisation, they argued even as Mr. Sinha pointed out that the key positions of chairmen and managing directors would be held by government nominees.

The unions paralysed financial operations spasmodically, as they were haunted by the thoughts - although banks would be freed from the clutches of Government, employees would be on crutches with just a VRS package.

Mr. Sinha clarified that if the Government decides to privatise banks, it will come out with a "transparent policy" as has been the case with other PSEs.

Despite repeated assurances, Opposition groups maintain that the proposed dilution of stake was an eye-wash and aimed at facilitating foreign banks to take over the reigns of cash-rich public sector banks.

Major foreign banks including Hongkong and Shanghai Banking Corporation (HSBC), Standard Chartered and Citibank, had, in fact, expressed intentions of acquiring Indian banks "when the laws of the land permit".

The financial power houses such as ICICI, HDFC and IDBI would be ready for universal banking once they start their insurance ventures, as they already have banking, asset management and securities outfit. Even banks such as such as SBI and Punjab National Bank have set long-term targets of becoming universal banks.

In the coming years, there would be more Indian banks listed in overseas bourses as many of them stalled their ADR/GDR issues considering the volatile market conditions. Some banks including Corporation Bank have even opted for the widely-acclaimed generally accepted accounting principles (U.S. GAAP) as part of their efforts to follow best practices and come on a par with their foreign counterparts.

Not everything was rosy in the banking sector as the fate of three weak banks - Indian Bank, United Bank of India and UCO Bank was still hanging fire.

The Banking Secretary, Mr. Devi Dayal, said the Government was considering recapitalisation for the three ailing banks.

The infusion of fresh funds would, however, be subject to conditions that the weak banks come up with a viable restructuring plan and carry out a manpower planning exercise.

Mr. Devi Dayal said the Government was working out a package according to their needs. The reason of their sickness was not unknown to the Government. The noose on "wilful defaulters" was tightened to the extent of carrying out criminal proceedings even as banks carried out one-time settlements with small borrowers.

The Banking Secretary said the Government was preparing legislations for insolvency and bankruptcy and setting up asset reconstruction companies to take care of the sticky assets lying with the banks.

Although chances are bleak that the Banking Secrecy Act would be altered, plans are afoot to form Information Bureax to maintain databases of corporates.

HDFC, SBI and Dun and Bradstreet are in the process of setting up a credit information bureau that would provide details of financial capabilities of corporates to banks and financial institutions before they extend credit.

Banks are also trying to sharpen their credit appraisal and strengthen their risk management mechanisms to prevent accumulation of fresh NPAs. While taking care of the losses, banks are exploring more avenues to raise their margins.

The focus is now on the retail segment and fee-based income that provide higher margins.

The flurry of credit and debit card issues, personal loan facilities and lastly distributorship for insurance products is a pointer to the change in focus.

Internet banking, of late, is catching on like wild fire as it would reduce the cost of operations drastically while increasing the reach of banking.

Even Internet banking seems to become obsolete as the latest trend would be mobile-banking - carrying out banking transaction over the cell phone. Are these changes customer-centric or a profit-centric way of operating banks? The new year would provide the answer.

- PTI

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