core sector communique

MCC Chamber of Commerce & Industry

Kolkata

MCCI organized an Interactive Session with Shri Bhaskar Sen,Chairman and Managing Director, United Bank of India on ‘Role of Banking Sector in Promoting Economic Growth – Opportunities & Challenges ‘ today at Chamber Hall.

Shri Sanjay Agarwal, Sr Vice President, MCCI  brought to the fore, issues of ‘rising NPA ( Non Performing Assets);’ ‘non availability of seamless and sufficient credit to the SMEs;’ ‘ financial exclusion of 50% of the Indian populace from basic banking services;’ and ‘apprehensions of implementing Basel III norms and low CDR ( Credit Deposit Ratio )’. MCCI also suggested technological upgradation of the banking services to cater to new generation and also to advocate ‘paperless’ banking service.

Shri Amitabh Kothari, Past President, MCCI in his theme presentation reiterated the NPA problem and sought UBI’s views on ‘ Greater NPAs in PSB ( Public Sector Banks) vis a vis their Private counterparts’; ‘Earmarking only  INR 15,888 Crores to the PSBs by the Central Government to meet a Capital Adequacy of INR 6 Lac Crores’;’The cause of the mergers and acquisitons among banks’ ; ‘Lack of Adequate Trained Personnels and a mechanism to retain the existing employees’;’ Less than the Book Value  Prices of PSBs Stocks  which is reverse in the Private Banks’; ‘Absence of any initiative among PSBs to generate non fund base income in the form of investment advisory services;’ and ‘High Interest Rates in Indian Banking system  compared to Global Banking Sector.

Shri Bhaskar Sen, CMD, UBI proclaimed that the ‘Nationalisation’ and ‘Financial Reforms of early ‘90s’ were the pillars of a big turnaround in the Indian Banking sector which registered a phenomenal growth from a meagre 4% CAGR in early ‘80s to CAGR 17% (till the first decade of the current millennium).It is due to the development of the Indian banking sector that today farmers are in a position to reap the benefits of the entire produce.

Answering to the queries and issues raised by Shri Agarwal and Shri Kothari, the UBI Chief stated that the adverse effect of Sovereign debt crisis will take an indefinite time to settle down. It is the ripple effect of this crisis which has caused the economic turbulence in India which is evident in different parameters including ‘high Inflation’  (which reached 10% during September, 2011), ‘High Cost of Borrowing’ ( due to demand side crisis which witnessed rise of benchmark rates on 11 occasions by a cumulative amount of 375 basis points)and ‘Supply side crisis’ ( due to high Food Prices despite sufficient monsoon due to high inflation). Shri Sen suggested that unless the Supply and Demand bottlenecks are removed, policies are made more transparent, inflation and interest rates will be not be curbed.

Shri Sen added that liquidity position in the banks have improved during the last six months from a situation where they were borrowing INR 2 Lac Crores on a daily basis. The country has witnessed a 5 basis point rise in NPA over the previous year which underscore the effect of the economic turmoil worldwide.  This year, banks are expecting a full monsoon season which will also have a positive impact on the lending side including priority sector disbursement. Banks have undertaken an initiative, to include all the  villages within the ambit of basic banking services in three phases. 72 ,50,00 villages in the country would be targeted by grouping in three lots in three phases - In the First Phase villages >2000 population, in the Second Phase villages with > 1600-2000 population and the rest will be addressed in the Third and Final Phase. UBI has already covered 1106 villages out of 7486 villages in West Bengal in the first phase. The Bank would cover 412 in the second  phase and the rest in the third phase.

On Basel III, Shri Sen stated that banks should not be apprehensive since meeting the CAR ( Capital Adequacy Ratio) of 7% for Indian Banks would not be an impossible task stating that UBI has higher than required CAR of 8.6%. On CDR (Cash Deposit Ratio), he stated that there is a distortion in the calculation of the figure. It varies region wise. CDR is 87% in Kolkata, whereas it is 20% in the outskirts. Consolidation of Banks is a welcome move initiated to create bigger  Indian Banks which are capital wise  very  small in the Global Banking map.  Government owns only 51% of the stake in PSBs where the private sector owns 74% which provides the private company with greater voting right which may be the reason for Private Banks to quote stock prices greater than their book value. Non fund based  income for PSB is only 15-16% compared to 30% for Private Banks due to number of limitations of the PSB which refrain them from charging all the services they provide including investment advisory services. Banks have undertaken measures to train their personnel , to avoid attrition 30% of them.