Untangling India’s financial services

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Untangling India’s financial services

The nation’s finance sector cannot operate without due recognition of social realities. Neither can interventions be solved in isolation. A clear line of vision is needed 

There are so many balls in the air today that it is increasingly becoming difficult to understand what the speed of each one is. The reference here is to the Indian financial system. It is common knowledge; and any child would know it that when different balls are moving at varying speeds, then a careful calibration of the two hands becomes necessary to drop any one ball on the ground. The problem that arises here is that if one ball falls on the ground, to pick it up, one has to run over the risk of dropping all other balls.

However, this analogy, like every other analogy, is a limited one. Consider for example even as the dust over demonetisation campaign was yet to settle down, the Goods and Services Tax has been pushed into center-stage. The story rolls on. THE National Stock Exchange is in throes of initiating India's largest initial public offering in the last seven years. The Securities and Exchange Board of India (Sebi) is an overdrive not only to systemise the working of the board, but between the Chairman, Sebi and the Chairman of the committee appointed by it to set right the multiple so-called aberrations of the company boards, are determined to improve corporate governance of listed entities. There is nothing wrong with that. Yet it is true that the public sector undertakings have their own cup of wows. Well intentioned provisions of oversight by the Comptroller and Auditor-General of India and the Central Vigilance Commission, have put them in a very different class, as compared to private enterprises.

Like all simultaneous soap operas, the narrative further unfolds with scripts getting mixed hearing. The norms of good governance have their own considerations of business operations. It touches many things, including concern for related party transaction norms. related party transactions norms have unique requirements which are not yet amenable to digitisation!

The banks have the problems of non-performing assets (NPA) and provisioning. The Reserve Bank of India (RBI) is rightly determined to solve the problem, once and for all. However, the public sector banks touch the lives of the all-powerful common man of India, whose power everyone recognises but the entity remains elusive. Shrill voices in the name of the common man can be heard all over, once his convenience and indeed livelihood is hurt.

The financial services of India cannot operate without due cognizance of the social realities. Be it the Sebi panel on governance; or the RBI’s approach to NPAs, everyone is a stake-holder. The list of financial sector interventions can be further added to. That is not the point.

The point is of the overall coordination amongst all these interventions. The reason being: At some point it has to do with the overall economic health. None of the interventions noted above can be in isolation. They are all in an inter-actuary relationship. How can the impact of demonetisation on banks be de-linked with the efficiency of the functioning of the banks? Indeed, how can the functioning of the banks be de-linked with the cure of the NPAs? Or indeed, handling of the NPA's be de-linked from the issues of governance?

The list can go on without making the point any more obvious and cogent. But whose job is it to access and integrate — forget extrapolation — the collective impact? On top of it there are longitudinal segments of global banks, public enterprise banks, private banks, cooperatives, just to name a few. If the NSE is undergoing an experience, it cannot be in isolation with no relationship to the experiences of the Bombay Stock Exchange. After all, investors are interested in the routes and assurances of stock exchanges.

The above noted situation is characteristic of a scenario where internal combustion pressure may cause the seams of the financial welfare to come apart. This is not just a statement of an anxiety-prone mind. While the slogan of too little, too late has been hugely popularised, the time has come to consider another simple point of view. That point of view is of ‘too much, too soon' without a real grasp either on the enabling conditions on the consequent fallouts. It may not be premature to sound the caution of integrative approach to financial interventions. There has to be a clear cut line of vision on the horizon if the choppy seas of reforms are to be confidently negotiated.


(The writer is a well-known management consultant)

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