Bad times are good time for Indian banks to look within

Financial turmoil overseas and in India present an opportunity for banks to strengthen their basic framework and examine lending practices.

The current challenges in the Indian economy and, in particular, the banking sector, are a good time for banks to introspect, redraw strategies and focus on the critical issue of financial inclusion.

This was the overwhelming consensus among major bankers, policymakers and market players at The Financial Express Round Table Conference on 8216;Banking: The New Reality8217; in Mumbai on Wednesday.

The turmoil in the financial markets overseas and the problem of high inflation and interest rates actually presented an opportunity for banks to strengthen their basic framework and focus on cost cutting and risk management, and take a close look at their lending practices, particularly retail lending, bankers said.

Setting the tone for an engaging debate, Pawan Kumar Bansal, minister of state for finance, said though there was pressure on the banks due to the rising interest rates, the sector has been the major driving force for growth in the pastfour-five years.

8220;When the world is grappling with the possibility of recession, Indian banks have fared well. Hundred per cent financial inclusion seems to be a possibility now as the state-level bankers8217; committees have already given figures of the areas covered under financial inclusion,8221; said Bansal.

The minister said low-cost current account savings account funds could prove advantageous for the banks while serving the objective of financial inclusion. Traditional banks should get ready to face competition.

MV Nair, chairman and managing director, Union Bank of India, said, 8220;This is the time the banks need to tighten their belts as regulatory requirement would lead them to bring down credit to curb inflation. There are challenges before public sector banks,8221; he said.

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According to him, the moot question is, why state-owned banks lost 10 per cent of market share to the foreign and the new-generation private sector banks.

Naina Lal Kidwai, group general manager and country head, India, HSBC India, said, 8220;While in the short term the sentiment looks very cautious, good projects will happen. In 2009-10, foreign banks will come into India and make the scenario very competitive,8221; she said. ABN Amro Bank country executive, India, Meera Sanyal said, 8220;Today, the biggest challenge and constraint for us is rural delivery.8221;

Rana Kapoor, founder of Yes Bank said banks had strategies for three scenarios 8212;short term, medium term and long term. 8220;Though the short term strategy has to manage the tougher issues , in the longer term India growth story remains very attractive.8221;