Banking Mess- How To Fix It?

Steps that government, regulators and banks need to take to make the banking system more competitive, efficient and less fraud-prone.

- Anand Adhikari

STATE BANK OF INDIA (SBI), the country's largest bank with assets of close to ₹27 lakh crore , is more than three times the size of the second largest bank, HDFC Bank. This shows a very skewed banking system.

The market capitalisation of HDFC Bank, at ₹4.95 lakh crore is almost equal to that of all the public sector banks (PSBs) put together, including SBI. This raises a serious issue of capital efficiency and performance of PSBs.

The take home package of a private bank CEO is anywhere between ₹6 crore to ₹12 crore annually. Its multiple times the package of PSB honchos of equal size or bigger. The uneven compensation package acts as a disincentive for PSB staffers.

Such puzzling statistics from the Indian banking industry are endless, raising questions which defy easy answers. Indeed, domestic banks – particularly the PSBs – have made news for all the wrong reasons recently. NPAs, poor credit standards, bad governance, excessive interference from the political class, etc.

The massive scam at Punjab National Bank by diamantaire Nirav Modi has put the spotlight once again on banks. Coming close on the heels of the Vijay Mallya episode, it showed how the system could be abused with impunity. Worse, these are not stray examples. Government records show that there were as many as 8,622 frauds at PSBs in two years – between 2014/15 and 2016/17 – often in collusion with staffers. And, surprisingly, private sector banks too have been at the receiving end – they had over 4,000 frauds in the same period.