BANKERS MULL DIFFERENTIATED LENDING STRUCTURE

MUMBAI: A weekend meeting of public sector bankers called by the department of financial services (DFS) deliberated over a differentiated lending structure to make state-run lenders more efficient, said four bankers who attended the workshop. “Large banks will do corporate banking and smaller banks will do retail. Smaller banks will focus on their niche strengths and geographies,” said one of the four bankers.

The meeting, called PSB Thinkshop(earliereditionswere called Gyan Sangams), ended with bankers making a presentation to finance minister Arun Jaitley, the bankers said on condition of anonymity, since the meeting wasn’t public.

Bankers also deliberated on capital allocation, asset quality and credit growth. The department of financial services will examine these suggestions and come out with a blueprint to strengthen PSU banks, said the second of the four bankers.

On October 24, the government announced a ₹2.11 lakh-crore bank recapitalisation plan spread over two years to strengthen public sector banks, who are sitting on the lion’s share of stressed loans, and boost credit growth. At that time, Jaitley had said this plan would be accompanied by banking sector reforms.

“Larger banks suggested that there should be segmented banking. However the decision has to be taken by individual banks and their boards. The larger banks also suggested asset swapping, where smaller banks can sell or swap assets of large companies to larger banks,” said the third of the bankers cited earlier.

Bankers pressed for the idea of differentiated lending as this will ensure that banks can focus on their strengths, be it in regional advantage or understanding of a particular sector, said bankers.

“The government is keen on ensuring that the recapitalisation supports loan growth,” said the fourth banker.

The idea of differentiated lending isn’t new. A 1991 committee under the chairmanship of M Narasimham, a former RBI governor, had suggested a three-tier structure which would have four lenders as global banks, 10 universal banks and local banks that would focus on specific regions.

“Conceptually, it’s a good idea. But one needs to see the regulations around segmented banking,” said Karthik srinivasan, group head, financial sector ratings, Icra.

DFS couldn’t be immediately reached for comment.