2015: Banking for the masses

Hyderabad: The year 2015 really brought revolutionary change in the banking sector, the biggest change that is brought in by RBI Governor Raghuram Rajan by introducing payment and small banks. Traditionally, Indian banking sector is familiar with three layers – commercial banks, cooperative banks and NBFC.

In August, the payment banks got approval to set up operations followed by small banks in September, thus the differentiated banking regime was set in which can improve the capacity ‘doing business’ be improved in the country.

The payments banks are aimed at facilitate payment services and accept small deposits without carrying out the lending operations. The big business houses like Aditya Birla, Airtel, Cholamandalam, Reliance and Department of Posts have obtained licences.

Although the listed micro financer SKS was denied licence, other microfinance institutions like Ujjivan Financial, Equitas and Janlakshmi obtained lincences to run small banks, a miniature banks mandated to serve as commercial banks of course in a smaller scale. Both these new generation banks are expected to start operations in the next 18 months.

Hopefully, these two new set of banks will change the definition of banking by going near to those small-ticket customers, using technology and reach. Further, the year saw the entry of two full-service banks – IDFC and Bandhan, which have started operations in 2015. Bandhan, a MFI, is based out of Kolkata while IDBI is an infrastructure lender converted into bank.

PM’s Jan Dhan Yojana

This is another massive banking initiative that driven banking sector, though launched in August 2014. Over 19 crore bank accounts opened and hold about Rs 27,000 crore in these accounts. If we kept aside the criticism, the Jan Dhan roll out would be the biggest India has ever seen.

What Rajan did?

RBI really put up a huge fight against banks holding non-performing assets (NPAs). Since April 2015, the apex bank started taking harsh decision against banks in order to streamline the NPAs. First, it had removed special regulatory dispensation, forcing banks to treat restructured loans equal to NPAs for provisioning. They have to set aside 15 per cent of the loan amount considering it as bad loan.

Then Rajan insisted the banks to early identify stress in the loan and try to address the problem. He pushed the banks to take up action against ‘wilful defaulters’, which is the finale of the banking action by the Reserve Bank. For instance, Vijay Mallya classified as willful deaultuer in November 2015, as Kingfisher Airlines (promoted by him) owe Rs 7,000 crore loan to about 17-bank consortium.

Thus, the year 2015 has brought changes on both – regulatory front and industry level. Now with the introduction of bankruptcy code, will offer enough teeth to banks in recovering dues, which were assumed to be totally lost in a troubled company.

By KVVV Charya