BY SAMIKA DAGA
An inadvertent constituent amongst the countless victims of this Covid-19 virus, are the Public Sector Banks in India. They entered the tragic Covid-19 economy already quite vulnerable with an ever-rising level of sticky loans, and will, in all likelihood, be exceptionally affected.
All the several sectors that banks normally lend to such as hospitality, airline, tourism and so on, have been critically hit due to the outbreak of the Coronavirus. In essence, banks need money to honor their interest commitments, or else they will basically be looking at bankruptcy. In order to rebound from this crisis, banks will have to take on a more aggressive approach to reinvent current circumstances.
Since the major shareholding, above 51%, in Public Sector Banks lies with the government, a significant amount of the heavy lifting required to raise capital must come from the government. Divesting in these Public Sector Banks by bringing down their stake, which is presently above 51%, to 26% can help relinquish government management in day-to-day activities, and accelerate the process of recuperation of these banks. This might not only open a doorway for the increase in capital, but also do away with unnecessary interference. Dispossession of stake holding of the government and steering the banks towards privatization will equalize the playing field in the Indian economy. While the government will still be a consequential stakeholder, the decision-making autonomy would lie with privatized institutions in order to keep up with prompt decisiveness.
With the ripple of shock waves this pandemic has sent across the globe in the form of its by-products, one of the most glaring ones seem to be the growth of digitization. While the human population has already been progressing towards as well as notably mastered a part of the digital era, this current Covid-19 crisis hollers for further fast paced digitization.
Banks in India have recorded the highest number debit cards issued in the last three months. With mass adoption of digital tools and heading towards the new “normal”, banks should seek a rapid transition from physical to digital transactions. A strong digital infrastructure can help banks in dealing with changing client needs, redefining business models, as well as effective and efficient collaboration of employees.
Another feasible and tested course of action that might help Public Sector Banks for their speedy recovery is the coalescence of banks. More commonly known as a merger, two or more banks amalgamate into one bank, thus emerging stronger with more capital generating capacity. Last year in August, finance minister Nirmala Sitharaman announced the amalgamation of ten Public Sector Undertaking (PSU) banks into four mega state-owned ones. Operating under a single management will increase efficiency and prove to be more cost-effective, which is unquestionably the need of the hour in these perturbed times.
Provisions have been made by the Reserve Bank of India in the form of moratoriums, but are unlikely to suffice and there will most expectedly be a rise in credit costs in the upcoming Financial Year of 2021.
With the population moving towards what is now called the new “normal” with seemingly little chances of sinking back to its wonted lifestyle, perhaps this pandemic will serve as a catalyst in building resilience in the form of antibodies for banks in India, in order to withstand similar attacks in the future. Just as the frail house hit by cyclone Amphan will be remodeled and reconstructed to steer clear of calamities akin, Public Sector Banks will have to revisit their guidelines and restructure themselves in order to advance towards the road for post pandemic recovery.