Thara.Menon@timesgroup.com

Global economy is in astate of turmoil. In ahighly globalised

environment, developingeconomies and emergingmarkets like India are alreadyfeeling the reverberations ofits sweeping impact. As thebarometer of the economy,the financial sector, and therole of reforms in ensuring the financial health of thecountry, have assumed greater significance.

In this context, the 14thedition of K P HormisMemorial CommemorativeLecture Series on the topic‘Financial sector reforms inIndia - the past and thefuture,’ which took place onFebruary 13, 2016, turned thespotlight on the challengesfaced by the financial sectorand the way forward forreform and growth in thesector. It also created aplatform for Kochiites to hearfrom the most authoritativevoice on the subject - Dr GRaghuram Rajan, governor,Reserve Bank of India (RBI).

The annual lecture series isorganised by Fedbank HormisMemorial Foundation, a publiccharitable trust instituted byThe Federal Bank Ltd., theleading scheduled bank in thecountry, to perpetuate thememory and mission of itsvisionary founder K P Hormis.The Foundation, established inthe year 1996, has over threedecades, spearheaded thecampaign to translate hisdream of inclusive growth into reality. The Foundationhas made deep-rootedcontributions in various social segments, particularlyhealthcare, education,agriculture, environmentprotection, women’sempowerment, upliftment of the underprivileged and many others.

Delivering the inauguraladdress C A Nilesh ShivjiVikamsey, managing trustee ofthe Foundation and chairman,The Federal Bank Ltd., dwelton the challenging timesahead for the financial sectorin the country, setting the tonefor the evening. “The world isgoing through a great deal ofturbulence and volatility. Thefinancial sector is transitingthrough a critical phase, withstressed assets, falling bottomlines and other challenges,creating a complexoperational environment. Thetopic of today’s lecture isaimed at throwing the light onthe way forward for thebanking industry,” he said.

Raghuram Rajan, openinghis speech, acknowledged thecontributions of stalwarts likeK P Hormis to banking. “K P Hormis is a visionary whopioneered social banking longbefore Indian banking hadmatured to that level ofthinking. Leaders like himtook the slow and arduouspath of building thefoundations of a solidinstitution, based purely onorganic growth and 'intuitive'banking, at a time when aneffective framework wasabsent,” he said.

He went on to add that thefinancial sector had reached a

critical stage of evolutiontoday. “We are on the verge ofa tremendous transformation.Global cues have impactedthe sector. But there are hugeopportunities too, to connectevery Indian to the bankingsystem, to create value andmuch more. We need to takeadvantage of that,” he said.

The reform process in recent

years has revolved aroundcreating novel solutions toleverage these opportunitiesand deliver last mile bankingconnectivity, which are criticalfor a growing economy likeIndia. It aims at triggeringcompetition, in a measuredway, and creating adequatesupport framework. The ideais to enable financialinstitutions to voluntarilycome up with innovativesolutions and bring aboutdepth and resilience to the system.

“New formats of bankinglike payment banks and smallfinancial banks will helppromote inclusive banking,with adequate checks builtinto each, to ensure a levelplaying field. Small banks havethe ability to connect to smallcustomers, in cases wheretraditional banks with theircomplex management systemare not able to reach and

deliver,” Rajan explained therationale behind recentdevelopments in the sector.

At the same time itnecessitates universal banksto revisit their risk mitigationstrategies and ensure effectivemonitoring systems. Hestressed on the criticality ofautomation, processstreamlining and humanresources, going forward. “Theroles of banks are increasing, awhole new variety of skills are

required to drive that change.We are looking at measures toempower banks especiallythose in the public sector, tooffer the flexibility of fixingcompensation for topexecutives, to attract the righttalent,” he revealed.

On the priority list ofthe central bank aresteps to improveefficiency andgovernance in publicsector banks. Initiativeslike Indradhanush aimat professionalisingbank Boards;introducingtransparency anddiversity at the toplevel anddecentralisingdecision-making. ABank Board Bureau tooversee boardappointments is alosunder way. “Process isunder way to empowerbank Boards to adoptdifferentiatedstrategies. Along withcleaning up the balance sheet,the strong branch network,the trust equity they enjoy andincreased automation will allcontribute to greatercompetencies in public sectorbanks,” he observed.

The key focus of the reformpolicy is to create a balancebetween technology,innovation and financialliberalisation on the one sideand caution on the other. “Weare not against technology toenhance customer experience,but as a regulator we need toensure monitoring systemsare in place,” the governorargued. He also called forsimplified legal processes forclosure of dead businesses

and quick redressalmechanisms fordelinquencies. The BankruptcyBill, awaiting parliamentclearance, is expected tospeed up the process.

Along with financialinclusion, consumerprotection is also top of theagenda for the central bank.While access to payments and

cash is the first step toinclusiveness, Rajanemphasised the need forfinancial literacy to preparecustomers against frauds. Thenew Charter of ConsumerRights, once in place, istailored to provide safeguards

for the less sophisticatedcustomers from unfairpractices like misselling, poorservice delivery and from fly-by-night operators.

New norms and instrumentsare being explored to ensureaccess of credit to thedeserving and marginalised.He urged the creation ofbetter framework and systemsto enable the use of UID orAdhaar as collateral. “All theinformation under UID shouldbe collated under a bureau.We also need to improvecollateral registries along withconnectivity. Once thathappens, the process of creditrating can become moreextensive to achieve inclusivity

in credit access,” he detailed. “Land is another huge asset

that has the potential to beused as collateral. Digitalmapping, better land deedsand creation of land leasingsystems can help unlock thevalue of land, creating a newavenue for lending,” he suggested.

In the pipeline are

developments that willredefine the paradigms oftraditional banking in thecountry. Set to go on stream ina few months is a UnifiedPayment Interface which isexpected to lend greaterflexibilities for transfers. A

Trade ReceivableExchange is alsobeing envisaged tofund Small andMedium Enterprisesto cover their costswhile selling goodson credit.

An alliancebetween theinternet marketplace and banks is anotherrevolutionaryavenue that is beingconsidered. “E-commerce is abooming sectorwhere a lot ofinformation isavailable onbehaviour andcredit use patterns.

This can be utilised for riskassessment while lending tosmall businesses that operateon this chain. These arebusinesses that deliverservices to all corners of Indiaand strengthening themthrough adequate credit isimportant in the strategy ofinclusion,” Rajan elaborated.

The event, partnered by TheEconomic Times, wasattended by the who’s who ofKochi’s social, cultural andcorporate universe. The talkwas followed by a briefinteractive session in whichthe governor addressed theconcerns and wish list of the audience and assuredthem that the reform

Consumer connect initiative

Banking on reformsBalancing liberalisation with caution will define the future direction of financial reforms in Indiaas 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 BankEmployees’ 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 FACTSDr Raghuram Rajan in his talk touched on the reforms alreadyrolled out and those on the anvil. Here is a quick round-up ofthe reform talk.

>> Reforms to make financial sector highly competitive tostimulate innovation in products and processes

>> Financial inclusion to be the core theme of the policy. Toextend the benefits of PM’s Jan Dhan Yojana by makingbanking transactions easy and accessible. Also explorethe possibilities of using UIDs and land assets as collaterals

>> More institutional diversity through new formats likepayment banks and small finance banks to broadbasebanking access and bring in financial inclusivity. They are structured to bridge gaps that universal banks cannot service, with built-in checks to ensure a levelplaying field

>> Initiatives like Indradhanush to professionalise bankBoards and increase flexibilities, transparencies andcompetencies in public sector banks. A Bank BoardBureau to be constituted to oversee Board appointments

>> Policy to encourage technology and innovation to provide enhanced customer experience. The key is tostrike a balance between liberalisation andconservativeness

>> A Unified Payment Interface in the pipeline to allowmore flexibilities for transfers

>> A Trade Receivable Exchange to facilitate smallenterprises to extend credit

>> To study a possible alliance with the internet marketplace to collate information from e-commercetransactions and create a credit intelligence database.This will open up a sizeable avenue of lending to smallbusinesses that populate the e-commerce chain

>> Reform policy to focus on customer protection andfinancial literacy. The proposed Charter of ConsumerRights will tighten consumer safety norms

>> To speed up risk redressal systems. Bankruptcy Code,once passed by Parliament, to create effective balancebetween banker and customer interests

The K P Hormis Commemorativelecture is an annual event that isconducted by the Federal Bank

Hormis Memorial Foundation. It was agreat honor for our Bank that the RBIGovernor, Dr Raghuram Rajan deliveredthe 14th K P Hormis Memorial Lecturethis year. Needless to add, the Governorwon the hearts of the brimmingaudience with his remarkable wit andwisdom, making the event very specialand memorable.

Our definition of the future of bankingis enshrined in the phrase ‘Digital atthe Fore and Human at the Core’. Everyinitiative of ours is guided by this credoand we believe that while we arecompeting with the best in the industrywith our digital weaponry, theFoundation and its activities nudge usconstantly to remain rooted in ourrelationship-banking legacy.

Shyam SrinivasanMD & CEO, The Federal Bank Ltd.

We are all for technology and

innovation to enhance customerexperience. But asa regulator we willput speed breakersin place to checkexcesses”

Dr Raghuram Rajan,Governor, RBI

process ahead would pavethe way for positive changes inIndian banking.

Backed by a pragmatic andprogressive reform agenda, thefuture looks bullish for theIndian financial sector. “Timesare turbulent, but fundamentalsare sound. Reforms already

under way, promise greatgrowth for the financial sector,for a long time to come. The realgrowth engine is the people.Backed by enabling policies weare on our way to a great futureof growth and the financialsector is going to play a greatrole 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

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