labels: rex mathew, banks & institutions
Banks need to improve their sources of earnings: B D Narang news
05 August 2006

Industry Veteran, Former Chairman of Oriental Bank of Commerce, B D Narang shares his thoughts on how this issue is panning out.

He says that banks need to improve their source of earnings, other than interest earnings. Indian banks are very well regulated and there are many ways to cut down on liquidity.

How do you think the bank chairman would respond to what has come in from the finance ministry now?
Personally I am very happy. We were getting a higher rate of growth only on the strength of cheaper and easier availability of the money to the corporates. We have to draw a compromise; are we looking for a little check on inflation or are we looking for sustained growth.

Today what we need is a higher rate of growth, we need more jobs, and we need more of that kind of GDP. So the banks will come under pressure, no doubt, but they have ways to make money through other means.

They can introduce more products; they can increase their service charges by improving services. So banks have ways to compensate. But once the signals go for expensive money, the rate of growth always gets stunted. At this point of time, at this stage of the economy, I will value rate of growth more than the few banking chips.

How do increasing things like service charges help the ultimate customer because of whom the rates are being rolled back or recommended being rolled back?
Banks come under pressure; nationalised banks in particular make money only from the interest arbitrage. We need to improve our sources of earnings, other than interest earnings. If you go to ICICI Bank, and ask for a statement of account, they will give it to you immediately, but they charge you Rs500.

So why can't we just improve our services. So our customers will be pleased to pay us extra service charges for better service. That kind of good service can always compensate for this higher increase in interest rates.

Would you have answered the same had you been at the helm of the public sector bank when you were working?
Maybe slightly different, but I have a different perspective today. I see the world moving in a different way. As a retired person, I go to various banks, I go to various institutions and I find that the customer is prepared to pay for a good service. Why can't we focus on that?

Since banks and non-government shareholders are the minority shareholders, is it fair to to load on them what the government's priorities are?
I would have been very happy if this pause or this signal had come from the RBI. That would have been much more durable and sustainable. Coming as a sort of a dictat from the government is a bit of aberration.

Is this also not fighting the global flow, the central banks across the globe are increasing rates as did the RBI, so why shouldn't the banks?
Indian banks are very well regulated and there are many ways to cut down on liquidity, so RBI has been doing all that. There are a number of ways to do that; interest rate is one of them. But had this signal come from RBI, things would have been totally different. This is not a signal that one would expect to come in from the government.

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also see : The government is right since bank rate has not changed: M S Kapur

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Banks need to improve their sources of earnings: B D Narang