ES flags out-of-proportion dwarfism of Indian banks

Despite nationalisation, a significant portion of the poor remained unbanked till 2014, it said. The survey also cautioned that “inefficient PSBs can severely handicap the country’s ability to exploit the unique opportunities” it can utilise today. It suggested use of FinTech (financial technology) across all banking functions and employee stock ownership across all levels to enhance efficiencies in public sector banks, observing that with the cleaning up of the banking system and the necessary legal framework such as the Insolvency and Bankruptcy Code, the banking system must focus on scaling up efficiently to support the economy.

The survey said bank employees should be given stakes through an employee stock ownership plan (ESOP) with proportionate representation on boards proportionate to the blocks held by employees to incentivise and align their interests with those of all shareholders. It also recommended that a GSTN type of entity should be set up to enable the use of big data, artificial intelligence and machine learning in credit decisions.

The survey also called on PSBN (PSB Network) to use technology to screen and monitor borrowers comprehensively and at length. “As government is the owner of all the PSBs, government has the right to use the data that PSBs generate during their business. Therefore, the government as the promoter must set up this entity that will aggregate data from all PSBs to enable decision making using big data techniques,” said the survey.

The survey also said if Indian banks were proportionately large in relation to the size of the Indian economy, India should have at least six banks in the global top 100 than just the current largest PSB State Bank of India, which is the 55th largest bank globally.