Thara.Menon@ timesgroup.com G lobal economy is in a state of turmoil. In a highly globalised environment, developing economies and emerging markets like India are already feeling the reverberations of its sweeping impact. As the barometer of the economy, the financial sector, and the role of reforms in ensuring the financial health of the country, have assumed greater significance. In this context, the 14th edition of K P Hormis Memorial Commemorative Lecture Series on the topic ‘Financial sector reforms in India - the past and the future,’ which took place on February 13, 2016, turned the spotlight on the challenges faced by the financial sector and the way forward for reform and growth in the sector. It also created a platform for Kochiites to hear from the most authoritative voice on the subject - Dr G Raghuram Rajan, governor, Reserve Bank of India (RBI). The annual lecture series is organised by Fedbank Hormis Memorial Foundation, a public charitable trust instituted by The Federal Bank Ltd., the leading scheduled bank in the country, to perpetuate the memory and mission of its visionary founder K P Hormis. The Foundation, established in the year 1996, has over three decades, spearheaded the campaign to translate his dream of inclusive growth into reality. The Foundation has made deep-rooted contributions in various social segments, particularly healthcare, education, agriculture, environment protection, women’s empowerment, upliftment of the underprivileged and many others. Delivering the inaugural address C A Nilesh Shivji Vikamsey, managing trustee of the Foundation and chairman, The Federal Bank Ltd., dwelt on the challenging times ahead for the financial sector in the country, setting the tone for the evening. “The world is going through a great deal of turbulence and volatility. The financial sector is transiting through a critical phase, with stressed assets, falling bottom lines and other challenges, creating a complex operational environment. The topic of today’s lecture is aimed at throwing the light on the way forward for the banking industry,” he said. Raghuram Rajan, opening his speech, acknowledged the contributions of stalwarts like K P Hormis to banking. “K P Hormis is a visionary who pioneered social banking long before Indian banking had matured to that level of thinking. Leaders like him took the slow and arduous path of building the foundations of a solid institution, based purely on organic growth and 'intuitive' banking, at a time when an effective framework was absent,” he said. He went on to add that the financial sector had reached a critical stage of evolution today. “We are on the verge of a tremendous transformation. Global cues have impacted the sector. But there are huge opportunities too, to connect every Indian to the banking system, to create value and much more. We need to take advantage of that,” he said. The reform process in recent years has revolved around creating novel solutions to leverage these opportunities and deliver last mile banking connectivity, which are critical for a growing economy like India. It aims at triggering competition, in a measured way, and creating adequate support framework. The idea is to enable financial institutions to voluntarily come up with innovative solutions and bring about depth and resilience to the system. “New formats of banking like payment banks and small financial banks will help promote inclusive banking, with adequate checks built into each, to ensure a level playing field. Small banks have the ability to connect to small customers, in cases where traditional banks with their complex management system are not able to reach and deliver,” Rajan explained the rationale behind recent developments in the sector. At the same time it necessitates universal banks to revisit their risk mitigation strategies and ensure effective monitoring systems. He stressed on the criticality of automation, process streamlining and human resources, going forward. “The roles of banks are increasing, a whole new variety of skills are required to drive that change. We are looking at measures to empower banks especially those in the public sector, to offer the flexibility of fixing compensation for top executives, to attract the right talent,” he revealed. On the priority list of the central bank are steps to improve efficiency and governance in public sector banks. Initiatives like Indradhanush aim at professionalising bank Boards; introducing transparency and diversity at the top level and decentralising decision-making. A Bank Board Bureau to oversee board appointments is alos under way. “Process is under way to empower bank Boards to adopt differentiated strategies. Along with cleaning up the balance sheet, the strong branch network, the trust equity they enjoy and increased automation will all contribute to greater competencies in public sector banks,” he observed. The key focus of the reform policy is to create a balance between technology, innovation and financial liberalisation on the one side and caution on the other. “We are not against technology to enhance customer experience, but as a regulator we need to ensure monitoring systems are in place,” the governor argued. He also called for simplified legal processes for closure of dead businesses and quick redressal mechanisms for delinquencies. The Bankruptcy Bill, awaiting parliament clearance, is expected to speed up the process. Along with financial inclusion, consumer protection is also top of the agenda for the central bank. While access to payments and cash is the first step to inclusiveness, Rajan emphasised the need for financial literacy to prepare customers against frauds. The new Charter of Consumer Rights, once in place, is tailored to provide safeguards for the less sophisticated customers from unfair practices like misselling, poor service delivery and from fly-by-night operators. New norms and instruments are being explored to ensure access of credit to the deserving and marginalised. He urged the creation of better framework and systems to enable the use of UID or Adhaar as collateral. “All the information under UID should be collated under a bureau. We also need to improve collateral registries along with connectivity. Once that happens, the process of credit rating can become more extensive to achieve inclusivity in credit access,” he detailed. “Land is another huge asset that has the potential to be used as collateral. Digital mapping, better land deeds and creation of land leasing systems can help unlock the value of land, creating a new avenue for lending,” he suggested. In the pipeline are developments that will redefine the paradigms of traditional banking in the country. Set to go on stream in a few months is a Unified Payment Interface which is expected to lend greater flexibilities for transfers. A Trade Receivable Exchange is also being envisaged to fund Small and Medium Enterprises to cover their costs while selling goods on credit. An alliance between the internet market place and banks is another revolutionary avenue that is being considered. “E- commerce is a booming sector where a lot of information is available on behaviour and credit use patterns. This can be utilised for risk assessment while lending to small businesses that operate on this chain. These are businesses that deliver services to all corners of India and strengthening them through adequate credit is important in the strategy of inclusion,” Rajan elaborated. The event, partnered by The Economic Times, was attended by the who’s who of Kochi’s social, cultural and corporate universe. The talk was followed by a brief interactive session in which the governor addressed the concerns and wish list of the audience and assured them that the reform Consumer connect initiative Banking on reforms Balancing liberalisation with caution will define the future direction of financial reforms in India as outlined by RBI governor in his talk at the K P Hormis Memorial Commemorative Lecture, organised by Fedbank Hormis Memorial Foundation, at Kochi Nilesh Shivji Vikamsey, chairman, Federal Bank, delivers the welcome address. Also seen are (L-R) P P Varghese, trustee and representative, Federal Bank Employees’ Union, Raju Hormis, trustee, Fedbank Hormis Memorial Foundation, Shyam Srinivasan, MD & CEO, Federal Bank, Raghuram Rajan, governor, RBI, Harish H Engineer, director, Federal Bank, and Paul Mundadan, trustee and representative of Federal Bank Officers’ Association KEY FACTS Dr Raghuram Rajan in his talk touched on the reforms already rolled out and those on the anvil. Here is a quick round-up of the reform talk. >> Reforms to make financial sector highly competitive to stimulate innovation in products and processes >> Financial inclusion to be the core theme of the policy. To extend the benefits of PM’s Jan Dhan Yojana by making banking transactions easy and accessible. Also explore the possibilities of using UIDs and land assets as collaterals >> More institutional diversity through new formats like payment banks and small finance banks to broadbase banking access and bring in financial inclusivity. They are structured to bridge gaps that universal banks cannot service, with built-in checks to ensure a level playing field >> Initiatives like Indradhanush to professionalise bank Boards and increase flexibilities, transparencies and competencies in public sector banks. A Bank Board Bureau to be constituted to oversee Board appointments >> Policy to encourage technology and innovation to provide enhanced customer experience. The key is to strike a balance between liberalisation and conservativeness >> A Unified Payment Interface in the pipeline to allow more flexibilities for transfers >> A Trade Receivable Exchange to facilitate small enterprises to extend credit >> To study a possible alliance with the internet market place to collate information from e-commerce transactions and create a credit intelligence database. This will open up a sizeable avenue of lending to small businesses that populate the e-commerce chain >> Reform policy to focus on customer protection and financial literacy. The proposed Charter of Consumer Rights will tighten consumer safety norms >> To speed up risk redressal systems. Bankruptcy Code, once passed by Parliament, to create effective balance between banker and customer interests The K P Hormis Commemorative lecture is an annual event that is conducted by the Federal Bank Hormis Memorial Foundation. It was a great honor for our Bank that the RBI Governor, Dr Raghuram Rajan delivered the 14th K P Hormis Memorial Lecture this year. Needless to add, the Governor won the hearts of the brimming audience with his remarkable wit and wisdom, making the event very special and memorable. Our definition of the future of banking is enshrined in the phrase ‘Digital at the Fore and Human at the Core’. Every initiative of ours is guided by this credo and we believe that while we are competing with the best in the industry with our digital weaponry, the Foundation and its activities nudge us constantly to remain rooted in our relationship-banking legacy. Shyam Srinivasan MD & CEO, The Federal Bank Ltd. We are all for technology and innovation to enhance customer experience. But as a regulator we will put speed breakers in place to check excesses” Dr Raghuram Rajan, Governor, RBI process ahead would pave the way for positive changes in Indian banking. Backed by a pragmatic and progressive reform agenda, the future looks bullish for the Indian financial sector. “Times are turbulent, but fundamentals are sound. Reforms already under way, promise great growth for the financial sector, for a long time to come. The real growth engine is the people. Backed by enabling policies we are on our way to a great future of growth and the financial sector is going to play a great role in this,” Rajan concluded. Audience in rapt attention as they listen to the talk on financial sector reform by Raghuram Rajan, RBI governor Raghuram Rajan interacts with the audience at the K P Hormis Commemorative Lecture Kochi, February 13, 2016 Dr G Raghuram Rajan, Governor, RBI, delivers the 14th K P Hormis Commemorative Lecture at Kochi Print partner