The Hindu Business Line : Banking on innovation

Judging from the reported views of bank chiefs at their consultative pre-credit policy meeting with the RBI Governor, Dr D. Subbarao, it would appear they have caught the contagion of pessimism that has afflicted many stakeholders in the organised economy. The sense of gloom about the prospects for credit growth in the coming quarters was compounded by the fear of rising defaults and therefore an increase in non-performing assets in the year; bankers were also not sanguine about the economic outlook in the coming months. All that negative sentiment expressed at the meeting and to reporters after the event appears to fit growing evidence that the economy is indeed slipping and may have skid some more in the March quarter.

This expression of pessimism, some weeks away from the April credit policy statement, may or may not goad the RBI to cut key rates or even allow deposit rates to fall so that margins are protected in a time of rising delinquency risks. Yet, bank chiefs should be the first to admit that successive snips of interest rates since September have had some effect on credit growth; month-to-month data since January does show an increase over the October-December monthly non-food credit growth. Month-to-month sales of growth drivers such as, cement, steel and now automobiles, are showing renewed offtake after the third quarter drop. That bankers too have whiffed business opportunities in these ‘fresh shoots’ has been evident in the number of alliances between car makers and public sector banks. Major public sector banks have branches in almost every nook and corner of the country and that presents a great opportunity to service new purchasing power in the rural areas. To be sure, NPAs may rise once the remission period for potentially bad loans, recently extended by the RBI beyond March 31 expires; banks cannot dress up bad loans for ever.

The outlook for 2009-10, and perhaps for the first quarter of the new fiscal, could just as well turn out to be modest with credit growth expanding slower by almost ten percentage points compared to the 27-28 per cent in 2008. Like most other productive sectors that are using the slowdown to innovate in cost-cutting and locating new markets, so too must banks; it is true PSBs have less elbow room to experiment with retrenchment, for instance, but they have more room to acquire technological efficiency given its uneven spread across individual entities. The next year, tough as it may be holds promise for banks that seize the moment to innovate for new business and efficiency.

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