Social banking to the fore
Assocham held its 13th Annual Banking Summit-cum-Social Banking Excellence Awards 2017 in Mumbai. Highlights of the presentations by the speakers:
MD & CEO, UAE Exchange & Financial Services
We have an unequal India. We are the second most unequal country in the world. Just 10% of the people own 76% of the wealth. Only 10% of small businesses have access to formal finance. And 19% of the population is still unbanked. We have to disrupt our mindset. We have to save capitalism from the capitalists. We need to move to best of breed financial services. We must change the approach from charging a price to take share of profit / happiness. This will be a partnership approach. There is $1 trillion worth of gold in Indian households.
Managing Partner, Ashvin Parekh Advisory Services
Today there are more challenges and less opportunities for universal banking. The major challenge is capital. There are 2 challenges with respect to capital. The largest is the mobilization of capital. The banking system has to show performance to raise capital. Of the `88,000 crore capital infusion, `55,000 crore was for capital of banks and `33,000 crore for economic activity. But it seems that the largest amount will be used in cleaning the system. New guidelines are now in force about monitoring of accounts. It is unfortunate that the regulator has to say how to monitor the accounts. Banking sector should turn more towards MSMEs and small borrowers. Making social banking closer to borrowers and at the doorsteps have been around for a long while. The infrastructure for social banking is more important than social banking itself.
former Deputy Governor, RBI Do we treat social and universal as two different activities? Universal is all services from one organization. The social sector actually needs universal banking. Law of nature is that darkness is most intense before dawn. In some time to come, creative destruction in banking is inevitable. Post this destruction, the banking sector will emerge more ethical, cleaner and pro-active.
After the global financial crisis, every bank is moving towards social banking. It has been pointed out at the international ILO conference that poverty anywhere is a threat to prosperity everywhere.
Banking is evolving and there is a need to expand the definition of social banking: In addition to sustainable and inclusive banking, it should include banking that should be done on the social networking platforms. It is time for social lending, such as through P2P platforms.
In MSME financing in UK, 14-15% is through P2P platforms. So, this is not a passing fad. Also important is concern for the environment and ethical banking.
RBI has redefined single and multiexposure limits. The finance minister has said in the budget that corporates should tap markets for funds to some extent. Any lending in MSME is still half work done unless the lender is capable of knowing and meeting lifecycle needs. Typically, the lending community pulls their hands during time of maximum need. Secondly, today there is a lot of information asymmetry between bankers and borrowers, leading to disadvantage of borrowers. So, there is need for financial literacy.
Looking at deployment of bank credit in agriculture, the long-term credit is declining and is being replaced by short term credit. So infra creation in agriculture is not happening. There is also continuous fragmentation of land holding. Similarly, while bankers are generally exceeding agriculture lending target, a large part of the credit is going to farmers with large land holdings.
former Deputy Governor, RBI Understanding of social banking has changed over a period of time. Mainstream bankers have been goaded to go into new sectors. Technology is bringing borrowers and lenders together directly. In the medium term, banking space will reduce in the entire financial system. Banks will reduce corporate and infra credit. That leaves MSMEs and retail. There will also be change in liabilities of banks. Savings will shift from bank deposits to other instruments. RBI has a legal mandate for inflation targeting. With low interest rate regime, savings will