Report by OD bureau; New Delhi: The financial crisis that hit the world economy in October 2008 continues to keep the world on the brink. The sovereign debt crisis in several European countries in the euro zone has serious implications. The Indian economy is also passing through difficult times. The exchange rate of the rupee, the commercial banks’ NPA levels, India's growth rate, the negative growth of trade, rising corruption and the policy paralysis are all causes for worry.  During these trying times, the industries are looking at the country’s Central Bank and the commercial banking system for suitable measures and direction to offer some silver lining.

Against this backdrop, CII Eastern Region is organised its 5th Banking Colloquium 2012 here in Kolkata.

Mr Diwakar Gupta, MD & CFO, State Bank of India in his special address on the challenges of the bankers in today’s economic scenario highlighted the areas under three broad heads from an essentially operational standpoint – recap of scenario, national goals ahead and the role of banks. He mentioned that though the country is still the second fastest growing economy but our GDP growth has come down to 5.5% and the financial savings constricted to 6.7% of GDP from 9.3%. The inflation rate is hovering at around 10% and there are some issues with the structure of BOP as the country bypassed the manufacturing growth in the course of structural shift. The risk aversive mood of bankers and investors has resulted in low appetite for investment and capital expenditure also affecting growth story. The rupee depreciation though benefitted textile industry the rest of the sectors have been adversely affected. Moreover, the inelastic demand for gold and oil consists of more than 50% of the import of the country. However, Mr Diwakar Gupta painted an optimistic picture, “Incremental changes lead to incremental profits. It is a good time to undertake outlandish ventures.”

The key national priorities ahead are to upgrade agriculture productivity which can generate about 250-300 million jobs, upgrade of quality of products to manage the challenges thrown up by globalization, optimum utilization of demographic dividends by producing skilled workforce, vibrant financial sectors, sound fiscal policies targeted at manufacturing goods instead of mere subsidies, and good governance for successful implementation of policies.

Discussing the roles of banks Mr Gupta emphasized on financial inclusion, leveraging the scope of MFIs, consolidation of banking fraternity, reduction of NPAs, proper implementation of technology and concerted plan around HR.  Mr Gupta added that there should be a cap on decision making time since NPA management is critically linked with quick decision making for rehabilitation and resettlement.

Mr George Cherian, Banking Editor, ET Now while conducting the CMDs Roundtable on Survival and Growth in Uncertain Times touched upon relevant issues like Asset Quality Management, Capital Management and the significant challenges lying ahead of Indian Banks.

Mr Ajai Kumar, CMD, Corporation Bank, mentioned that the numbers of NPAs are already at the critical level and both the external and internal factors needs to be addressed simultaneously to improve the performance of assets. He added that Corporation Bank has incorporated technologies like Early Alert System to enable early intervention that would prevent assets going into nonperforming category.

Mr M Narendra, CMD, Indian Overseas Bank, mentioned that the Indian market needs more value creation and for higher economic growth there is a need to reach out to the bottom of the pyramid. He added that the high fiscal deficit has resulted in a decrease in government investment.

Mr Bhaskar Sen, CMD, United Bank of India, added that some of the external factors like increase in basis points by 250 to 275 and issues in the civil aviation, power and others have contributed to the asset quality. He also mentioned that the investors should be provided adequate space to retain the quality of asset.

Mr Diwakar Gupta mentioned that quick decision making is imperative as business failure is not a crime.

On the aspect of CDR mechanism, Mr Ajai Kumar mentioned that some of the corporate with a healthy balance sheet have exploited the CDR mechanism either to defer payment or to avail a lower interest rate. Therefore he emphasized that a proper filtration of the CDR mechanism is needed. Mr M Narendara added that CDR should be made a viable proposition through the collaboration of the management and the financial institution.
George Cherian pointed out that as per the Basel III mandates the Indian public sector banks are going to require around 500,000 crores of capital to which Mr Diwakar Gupta respondent that the banks are currently adequately capitalized and the mandated capital requirement is on 2018. He mentioned that the banks need to focus on short run goals to capitalize themselves.

On cost efficiency, Mr Diwakar Gupta mentioned that though profit per employee of SBI is low the expense ratio has come down from 49%. Mr Narendra Kumar also added that the banks are not overstaffed and since the business models and legacy of public sector banks vary from private banks therefore a comparison cannot be dawn. Mr Ajai Kumar added that PSB need to play an important social role as they reach out to remote villages and undertake financial inclusion programs. Mr Bhaskar Sen mentioned that out of 25 working days the ban has to work on 22 working days on payment settlement of NREGA, pensions and others.

However all present reached a consensus that things are better now with liquidity back in system and no more interest rates hike expected shortly.

A CII-Brickwork Ratings Study on Enhancing Creditworthiness was released.

Mr D Ravishankar, Founder Director, Brickwork Ratings India Pvt Ltd, Dr Saugat Mukherjee, Regional Director, CII Eastern Region, Mr S K Menon, Chairman, CII ER Economic Affairs, Finance & Taxation Sub Committee were also present at the inaugural session.