Commerce for the poor is more viable than commerce for the rich: K C Chakrabarty

Deputy Governor of the Reserve Bank of India (RBI)K C Chakrabarty talks to Ritesh Mehta about the conditions prevailing in the Indian banking system.

2013 was a challenging year for banks and they were criticized throughout the year for high NPAs, RBI also mentioned it in its Financial Stability Report(FSR). Is it a cause for alarm?

Non-performing assets (NPAs) are not a cause for alarm but they certainly pose a challenge. NPAs when combined with restructuring is the problem. Banks have handled such high NPAs earlier but the increase in speed of NPAs is a cause for concern. If the situation is not tackled, it can go out of control.

In that case do you believe there is a need to change the process of restructuring?

The way banks are restructuring is not proper. It is a legitimate instrument and banks should not do it to hide NPAs. The process of restructuring needs modification and should happen across the board in all categories. Banks should classify all restructured accounts as NPAs and all NPA accounts should also be considered for restructuring. If things are done properly then banks will be fair in doing restructuring.

One common complain is that banks largely give preference to big customers whereas small customers are neglected

There is a trend that gives differential treatment to underprivileged in the Indian society and we are trying to incentivise banks to give the same preference to all customers. Business can only grow when small customers are kept alive and banks should focus on small borrowers. Commerce for the poor is more viable than commerce for the rich.

Allegations are that banks have a nexus with the borrowers, FM has also reiterated the same

I don’t think there is nexus between banks and borrowers. Banks do share a cozy relationship with promoters and they do give preferential treatment to big corporates. However, there should be continuous monitoring of small accounts. Restructuring and other benefits should also reach small borrowers.

Banks have written off loans close to 1 lakh crore. Are banks using this instrument in an improper way?

We always blame banks for higher NPAs. The corporates who avoid paying loans should also be blamed for it. Giving loans to a risky business, at times, has gone wrong. The banks then have to cover the risk while giving these loans. Write off is not considered to be a wrong method either. It can been done only after a proper recovery process.

If promoters don’t pay banks, they don’t have any option left available to them than a write off. However, technical write off should be totally stopped. While doing a write off, there should be a yardstick o be followed by banks.

PSU banks have higher NPAs than their private peers, where is the problem? Is the Full form of NPA Non-Performing Administration?

Management, governance and administration of private banks are better than their PSU conuterparts. Issues in PSU banks are more due to structural inadequacy which consist of government ownership, public shareholding and so on. Structural issues in PSU banks are also due to regulatory forbearance and RBI doesn’t have the same law for private banks as it does for PSU banks.

In private sector, there is a separate post for CEO and the chairman. PSU banks need structural changes for the whole system. We have spoken about these changes in the FSDC sub-committee. Also, corporate governance and management needs a total overhaul in these PSU banks. Moreover, many management principles are not the same for private banks too. The central bank is working on the issue PSU banks face and we will try to change it.

Do Banks go for financial inclusion only because they are mandated to do so?

If banks do financial inclusion as a target, it can never happen. It`s a wrong approach. Financial inclusion is a legitimate and viable business and banks can make higher profits if they practice financial inclusion. Banks on their own cannot do it, especially for the entire country. State govt, central govt, NGOs and regulators should help with the process of financial inclusion.

You have always advocated banks to cut cost of transactions for customers, do you believe there is still some scope left?

Certainly, there is a lot of scope for banks to cut cost for small customers. As a matter of fact, they have scope to cut cost in all areas for small customers. Transaction cost in other sectors has comparatively come down a lot. Until cost reduction is not done, inclusive banking is not viable. Therefore, banks need higher competition to cut cost. The new bank license will bring in lot of competition and innovation.

RBI has spoke about plastic currency, when can customers get it in their wallets?

Plastic currency will take time but it will happen. We are starting a pilot project for plastic currency soon and have completed our tender process for its issuance. We will start with one billion notes of Rs 10 for these pilot projects.

Recently, a lot has been talked about ATM security, after the incident in Bangalore. Also, are banks talking about increasing charges?

ATM security is more of a law and order problem. Banks provide security to ATMs more for their own machines and the money in them. There will be an increase in charges if the cost is increased for the use of ATMs. We should not expect banks to do a security check of individuals for robbery and theft. Security for banks, is a very debatable topic. State government should work on law and order for providing security to the ATMs. If banks are forced to, they will certainly close down some machines.

Lastly what is your view on the economy for this year

We certainly hope 2014 turns out to be better than 2013. RBI believes the worst is over for the economy. However, we should not be complacent about the economic situation; we have to work hard and think positive for better economic prospects.

\Adaptation by Faizan Nizami