Finance secretary Rajiv Kumar is leading the team of bureaucrats assisting finance minister Nirmala Sitharaman in taking steps to boost sagging economic growth. In an interview to , he suggested that exports needed to be boosted to help the manufacturing sector apart from substituting non-essential imports and indicated that some of the bank mergers will be completed by early 2020. Excerpts:
In the last three-four years, there have been several structural changes. If you were to look at the earlier structure, there was lax discipline and standards across the financial sector, be it banks, borrowers, rating agencies or auditors, were weak. As part of a plan, the government has been trying to plug loopholes to ensure that the economy stands on a clean footing. If you join the dots, there is a much a cleaner credit system in place and better corporate governance standards. There is more transparency in the financial system. Demand from IT companies,startups and aggregators is not a problem. The slowdown is mainly in manufacturing and real estate, which were more dependent on the informal sector. One has to attend to these sectors because there is a shortage of equity and credit availability. The FM has had several rounds of consultations and whatever, fiscal or non-fiscal measures are required, are being taken.
So, is the transition is resulting in the pain to the economy?
In certain sectors, which were more dependent on the informal money, to an extent, yes. This transition will result in a far more stronger base on which businesses will be built. There is also a need to supplement export-oriented industries, such as electronics, textiles or food processing, where import substitution can take place. It will help the overall balance of payments situation, besides using up idle capacity. For that, this is the time to look at export-related schemes, either through subvention or easier rules.
have reduced, recoveries are high, 14 are now profitable, compared to just four in the previous quarter. The government has been working on a roadmap to not just clean the banking system but also make it robust. Banks have more powers for improved governance. Having brought them to a position of strength, this is the time for a leap forward. Unless there is scale, they can’t invest in technology, infrastructure or realise efficiency gains. We have been testing it step by step and we tried out with one merger and learnt from it. It is a move towards sound, well-capitalised banks, which have muscle, who can appraise better risk. It will be ensured that there is no disruption as far as customers are concerned and also credit expansion is not obstructed. The idea is to deliver services at the doorsteps of senior citizens, while the youth should get it on their palm, through mobiles.
Why four in one go and not one by one?
We didn’t want everyone to remain in a situation of suspended animation. We tested it through the State Bank and Bank of Baroda mergers. Now, we have very well-defined parameters. We have left six banks to provide certainty that they will grow and have pan-India reach.
The alternate mechanism has requested the boards to look at the proposals and send their proposals. There is already a meeting fixed on September 5 for the MDs and executive directors to learn from the BoB experience. The boards will suggest it, but it (merger) could be either on January 1, or April 1, 2020.
We are working under a very planned roadmap. Rationalisation of operations is last priority because there are other areas such as technology and procurement from which efficiency gains will come.
Is it time to look at a development financial institution since banks have asset-liability mismatch issues and lack ability to appraise long-term loans?
Long-term and infrastructure finance is a very specialised area. Every bank and financial institution went into it, at times without the required expertise. There is a need for an institution or capacity within big banks for long-term finance and raise long-term capital. There are two ways of doing it, either have a dedicated institution by creating one or by merging existing ones such as IFCI, IIFCL or others. Plus, there are sector-specific possibilities. Simultaneously, when banks have the strength, they can also set up a vertical.
robustness and resilience is of paramount importance. You can’t have your central bank, which does not talk from a position of strength. The sovereign and the central bank need very strong foundation. If the central bank’s foundation is weak, it doesn’t help the sovereign. It is in national interest to respect and support the central bank’s expertise, robustness and resilience. The committee of independent people and and people of repute has recommended that
Source: timesofindia.indiatimes.com