Banks mirror the economy. We are in the economic revival phase now. Last year our growth was negative at -7.3%. Banks have played crucial roles in revitalizing the economy over decades. Of late during the last few years – it is a matter of concern – bank credit off-take hasn’t picked up and found sluggish. And private investments haven’t grown. There are other factors – viz. established big companies with tracks can source funding through Commercial Paper, ECB, public deposits, etc.
We have 34 Banks (12 major banks in PSU sector), with appx. 1.20 lac bank branches. There are 13.80 lac bank employees. Lion’s share banking business is still catered to by PSU Banks. Some constraints faced by them are:-
Credit monitoring including periodical inspection of borrower units is a vital area – quality time & focus needed.
Manpower constraints are felt by many PSU Banks. Big Private sector & foreign Banks can afford to outsource routine stock & other inspection tasks. PSU banks are expected to carry out such essential marathon tasks by their own manpower. Large no. of schematic lending and other loans – vary from bank to bank – can improve in quality and quantity – if inspection of borrower units – are carried out in seamless cohesive synergy. If some private banks and big co-operative banks are willing to join the envisaged new synergy system of inspection – that can cut down overall costs involved in the process.
In many parts of the nation, there are industrial and commercial market clusters/areas. There are service industry players engaged in providing different services to the public. If carefully observed, every Bank deploys its own staff members – Officers – for inspection of units – leading to big transport and other costs – a multiplicity of efforts.
For instance, in one such big cluster, there would be scores of units having borrowed from various banking sources – several Bank Officers from individual banks visiting there for inspection separately periodically. What is being discussed doesn’t apply to large industrial and other corporate entities – which often have consortium lending arrangements – and member banks manage periodical inspection by consensual arrangements. And the discussion also doesn’t target many isolated interior rural areas due to the distance factors – as they are usually proximate to the lending bank with a service area approach for agriculture & allied activities.
A major chunk of millions of bank loans fall under small & medium categories – some in large unit type (not big corporate entities). Why not examine the feasibility of forming a big setup – say Banks’ Stock Inspection Team – comprising of some CAs, Engineers and a large number of experienced Assistants (many can be drawn from banking & another allied sector itself) – pooled into a massive support organization for routine Bank inspection of borrower units? Advantages are —
Bank branches can save lot of manpower deployment involved in individual inspections. If some decent boarding & lodging hotels in several towns are seen – it would be amusing to find that several Bank Officers stay there for separate borrower unit inspections.
Lots of transport expenses, invaluable time, the energy of individual inspecting Officers from separate Banks can be saved.
Expertise on inspection – which would be full-time task of the new Set Up – can be honed up. Standard cost, intricacies involved in various types of economic activities, time-saving (as they would be located closer to such manufacturing & other cluster areas) and independent assessment, etc. can accrue. Economies of scale would be highly beneficial.
Bank Managers & Officers can focus more on other vital areas of credit monitoring, studying periodical MSOD, Select Op. Data & other Returns submitted by borrower units as per requirement.
As individual Bank Branches get authentic systemic support for inspection, more loan proposals can be processed by them – leading to better credit off-take.
Risks of collusion – between few unscrupulous officials with some borrowers – can be minimized. The inspection would be an independent credible task entrusted to the new Big Inspection Teams. To that extent, fraud can be curtailed.
Some unscrupulous borrowers/units taking loans from different banks on the same assets/stocks – would be caught easily in the proposed new system envisaged. In cluster areas of collective big bank finances deployed, the Banks’ Stock Inspection Team can easily monitor their functioning – market trend – etc. in view of their frequent presence therein. The Team may also be advised to send some assessment report on such cluster markets – apart from the financial side, some common problems in such cluster areas too can be studied & conveyed to individual banks/branches as per collective formats – needs – to be decided in high-level joint meetings of bankers.
Internal Audit system in banks shall continue as per extant norms – doesn’t have a bearing on new synergy inspection team system envisaged.
Like in any plan, the suggested new synergy- Banks’ Stock Inspection Team – would also have few obvious risks. By careful identification process and envisaging good systems & processes – inbuilt checks & balances – the risks can be minimized.
Hope IBA and PSU Banks would examine the feasibility of such a cohesive combined huge stock inspection team suggested for synergy and multiple advantages.
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