Anatomy of Indian banking

Book review of Hits and Misses - The Indian Banking Story

Did you know that the average salary of a public sector bank (PSB) employee is almost 50 per cent more than that of a private sector bank employee? CARE chief economist, Madan Sabnavis’ Hits and Misses has many such revealing numbers that give the reader an interesting insight into the banking sector. Two things stand out in this book — one, the painstaking detailing of every crucial development over the past 25 years. Two, the Reserve Bank of India (RBI) has a gold mine in terms of data.

Divided into two parts — Trend and Controversies — the book opens with the first Narasimham Committee report of 1991, which set the ball rolling for banking sector reforms. These were exciting times for the sector, which also saw the advent of the first group of new-generation private banks — nine in the first decade. Of them, only four — ICICI, HDFC, IndusInd and IDBI — still exist. No wonder, only four licences were given in the next two decades. And except Yes Bank, which was bailed out by State Bank of India recently, the other three still do business.

The book, especially the first section, throws up some interesting numbers. Private sector banks in the past 23 years have done a pretty good job, growing at a compounded annual growth rate of 23.4 per cent against 14.6 per cent for public sector banks. When it comes to salaries and perks, however, public sector banks score. The average salary in public sector banks in 2018-19, employing over 800,000 people, is  Rs 12.51 lakh. For private sector banks, employing 470,000 people, the average salary was Rs 8.2 lakh. Clearly, the wage difference between the top management and foot soldiers in private sector banks is extremely high and vice versa in the case of PSBs. Add to that the benefits public sector bankers get, in terms of concessional rates in housing and other allowances that may not figure in cost-to-company calculations, and the inequality looks starker. Of course, the average salary of foreign banks, which employs less than 25,000 people, is a whopping Rs 28.9 lakh.

Mr Sabnavis also presents interesting data points. For example, though 35 per cent of the bank branches are in the rural sector, only 11 per cent of the deposits come from this market. Obviously, this reflects the government’s focus on financial inclusion, and is a part of the regulatory cost of doing business in India. In all, the first section is satisfying for anyone who wants to understand the Indian banking sector.

The second section — Controversies — asks some important questions about the Insolvency and Bankruptcy Court (IBC), whether bank mergers make sense, CEO tenure and compensation, and the relationship between the RBI and government. But it ends up slicing and dicing the controversies in too many chapters — 29 in all — dilutes the impact and makes for repetitive reading.

Glaring typos — such as referring to the World Bank Doing Business study as the World Bank Doping Business study and the odd crore missing from monetary values — detract from its utility.

The author handles complicated issues by presenting both sides of the story. “Yes, political economy is important  because as much as we try and steer clear of politics, it can never be separated from economics as all governments come to power based on promises that have to be fulfilled and in so doing, prudence is given a skip,” he writes.

Hits and Misses – The Indian Banking Story

Author: Madan Sabnavis
Publisher: Sage Publications

Pages: 320; Price: Rs 550

But he also takes a stand in certain issues. For example: When it comes to Monetary Policy Committee’s decisions on interest rates, the book finds it ironic that the government, which selects the six-member MPC, chides the RBI for taking interest rate calls with which it doesn’t agree.  

He also comes down hard on bankers’ arguments that they cannot reduce interest rates unless rates on small savings schemes such as post office deposits come down. “If [that] were remotely so, people should have shifted in large numbers because the difference in rates could be as high as 100–150 basis points. But…substitution has never been seen between post office deposits and bank deposits,” he argues.

There are some important suggestions to deal with non-performing assets (NPAs). Apart from the quarterly declaration of headline NPA numbers, the author suggests a sectoral break-up that will indicate both the rise and fall. This will help investors judge the quality of the portfolio that is being carried. He also proposes that the apex bank should list 100 large companies facing high risk, and suggests that credit committees should provide a detailed explanation for disbursing loans to them.

Mr Sabnavis uses all his 30-plus years’ experience to identify crucial issues facing Indian banking. It is timely because the post-Covid world could see another NPA surge. Lessons from the botched IBC process, the basic recognition of NPAs and other important findings could help the sector deal with the stress better. For a student or banking professional, this is an important book.

Tailpiece: The book is a reminder that 1991-92 were the most important years in India for economic and financial sector reforms. Besides economic liberalisation, these two years also saw the Narasimham Committee report and passage of the Securities and Exchange Board of India Act.