Mr. Girish
Managing Editor of BFSI Vision

The Non-Argument for new banks

The other day, I was reading a very senior central banker aver that India needs new private banks because these banks will bring in new technology, new ideas and new business models. I was aghast. How superficial are these arguments. Let us look at them, one by one.

Technology – Already, Indian banks have better technology than most of their global peers. All the fundamental pieces of technology are in place and work very well. If banks in India do not upgrade technology, it is not because they do not want new technology – but because new technology is often untested and may cause more problems. In any case, technology was never an issue – unless it is the person’s view that new banks will innovate new technology – and not buy it from the available players in the market. So technology – a big no show. In fact the older players have the edge in technology. They can out technology the newer players who will need to have it all from the word go!

New Ideas – WOW – can you beat that. A new breed of bankers will come up from nowhere with new ideas. Instead we will see poaching of senior bankers and roping in of retired bankers to man these new banks. We may see a mix and match of ideas. But radically different business models – well - that seems remote. Not with a regulator who will be scrutinizing your every move. Unless it is argued that in the new set up, your average Joe banker will become an ideas man.

New Business Models – when the talk is of making banking boring, can we look at a different model for banks – that is apart from the purpose of accepting deposits for the purpose of lending and investing and running a payment system? Our bankers are innovative. We do not need new banks to innovate business models. And PSU banks often lead the charge. We need a controlled environment that will draw out these latent innovations.

So why then do we more banks? We need them simply because we are an under banked nation. We need more players to come up and spread banking across this vast country. We need them because it will not be possible for a few entities to raise the capital needed to fund India’s potential growth. But my fear is that a vast majority of them will end up clones of an HDFC Bank or ICICI Bank. Competent. Efficient. But not too fond of the rural India.

Can we just honestly confess that we are a free market aspirant, and therefore we need to allow ethically strong and honest people to set up banks, because, banking is after all a profitable business!