Banking frauds have reportedly cost nationalised banks as much as Rs. 25,775 crore, in the last fiscal alone. It is also a fact that public sector banks (PSB) have a much higher share of non-performing loans than their private sector counterparts. Turnaround would call for not just overhaul of oversight and managerial systems, but also path-breaking innovation to cope with new headwinds facing banks. There are other challenges. Savers are deserting banks to increasingly prefer mutual funds. Larger corporates are now required to gainfully tap the bond market, even as nimble fintech firms leverage technology to provide better access to standard banking products like loans, at fine rates.
Traditional banks, especially PSBs, need to proactively innovate to stay relevant. The way forward is to boost fee-based income and services and phase out excessive reliance on interest income. In tandem, there’s the pressing need to better leverage data to upend shrinking customer base. The projection is that 50 million small and medium enterprises (SME), which now mostly rely on informal sources of funding, are slated to seek bank funding, by 2020. But such SMEs may not have the ready collateral requirements that banks have traditionally insisted upon for creditworthiness. Hence the need for PSBs to gainfully leverage unstructured data such as prior transaction details and data from the goods and services tax platform to better gauge credit risks, and skirt around constraints like lack of bankability in SMEs segment.
PSBs need to make bold moves and initiate major transformations in operations and oversight to build world-beating businesses and scale up, going forward. They need operational autonomy, and that is constrained by ownership structure.