By Charan Singh
When an author with over three decades of experience in the field comes up with a book on Indian banking, you can expect good insight. Hits & Misses by Madan Sabnavis provides just that with an excellent history of the last 25 years of Indian banking and how things have changed in the banking sector.
Divided in two parts, the book provides trend analysis in the first half and talks about issues facing the sector in the subsequent 29 chapters, with a foreword by Sanjiv Chadha, managing director & CEO, Bank of Baroda.
In an engaging narrative, the author pulls no punches right from the start as he writes about the financial crisis of 2007 and 2008 and how India was insulated and even proud of the fact that nothing was going to happen because Indian banks are a “cut above the rest”, being ring-fenced by prudential regulation and best practices. He then takes the conversation to developments in Punjab and Maharashtra Bank, as also Yes Bank.
In Chapter 1, recommendations of the Narasimham Committee are a focal point, which become the benchmark for discussion in most of the chapters that follow. In the chapter on Advent of New Private Banks, the author very ably discusses the trend of new banks that were opened after 1995 and what was their fate. He writes how the Global Trust Bank ran into serious problem of governance and was finally merged into the Oriental Bank of Commerce. The Centurion Bank and Bank of Punjab merged first and the entity was taken over by HDFC Bank. Times Bank was also merged with HDFC Bank. The author traces how Kotak Mahindra Bank had its origin in NBFC-Kotak Mahindra Finance. The more recent entrants include IDFC Bank, which was a financial institution called IDFC Limited and got converted into a bank, while Bandhan Bank was a microfinance institution. IDFC Bank merged with Capital First to now become IDFC First Bank.
In comparing the performance of public sector banks with private sector banks, it is illustrated how private sector banks are more focused on profitability, while public sector banks are more focused on socio-economic indicators like financial inclusion. The private banks charge higher rates on advances and achieve better spread, reflecting high risk taking ability. The share of public sector banks, measured in terms of total liabilities, has significantly declined from 84.2% in 1995 to 61.2% in 2019, while the share of private banks has increased from 6.5% to 31.9% over the period. In another interesting finding, the share of officers in public sector banks increased from 26.0% in 1991 to 48.3% in 2019 while that in private sector increased from 24.1% to 92.9% over the period. Also, after analysis based on average salary, public sector banks are better paymasters than private sector banks. The rising NPAs in public sector banks are discussed extensively. However, it is not analysed that private sector banks do not generally invest in large infrastructure projects where the incidence of NPAs could be high.
The author provides trend analysis and clear arguments on issues like non-performing loans in the public sector banks; need for stronger regulation and supervision; trend in current and savings accounts; declining share of retail deposits; preference for deposits of shorter duration; rising credit to NBFCs; and significant rise in big-ticket loans of above Rs 10 crore. The business volumes are large in metro regions, which explain the expansion of brick and mortar branches. However, with fast spread of technology as well as mergers, in future, branches in rural areas and small towns may increase but would shrink in metro areas.
The book has interesting discussions on various issues like banking licences to corporate houses, non-performing assets, asset quality review in 2015, asset reconstruction companies, potency of the Insolvency and Bankruptcy Code and prompt corrective action, RBI’s criteria, and need for transparency in the banking operations.
There are some interesting analysis and observations. On corporate governance, to ensure independence of the Board, a suggestion is made that selection of members should be made through artificial intelligence. The merger of a public sector bank with another public sector bank does not serve any economic-efficiency purpose because there is a horizontal amalgamation of balance sheet. The privatising of public sector banks may not happen, because the government is able to implement many of its politically advantageous socio-economic schemes through these public sector banks. It also collects dividend annually, but this data is not available in the book.
The author has interesting views on recapitalisation of banks, loan waivers, CEO compensation, benchmarking of lending rates, deposit insurance, interest rates on saving deposits, tenure and selection of the RBI governor, role and stances of monetary policy committee, consumer price index as a measure of and target for inflation, relationship between the RBI and the government, and on separation of debt from monetary management.
The writings in this book reflect the wide experience of the author as he suggests revisiting the issue of charges levied by banks on services like number of withdrawals and deposits, interest payment on CRR balances, and priority sector lending.
The topics covered are wide-ranging and analysis extensive, making this book a must-read for all bankers and scholars associated with banking in India.
Charan Singh is CEO, Foundation for Economic Growth and Welfare
Hits & Misses: The Indian Banking Story
Pp 269 + xxvii, Rs 550