Banks in India are making too much money, at the cost of the consumer, according to Dr K.C. Chakraborty, Deputy Governor, Reserve Bank of Inida.
Speaking at Bancon 2011 here on Friday, Dr Chakraborty observed that while banks lose money anywhere else in the world, they do not lose money in India.
Dr Chakraborty, a former banker himself, said this in the context of impressing upon the audience that consisted mostly of bankers, that all this would change. Competition is inevitable, he said.
Competition, Dr Chakraborty said, is one of the drivers of banking business, along with financial inclusion, consolidation and globalisation. Consolidation, he said, would become a reality in the next decade. Similarly, globalisation too is inevitable, with both foreign banks coming into India and Indian banks going abroad. For this, he said that a cadre of ‘global' people would need to be developed in the banking system.
The Deputy Governor said that going forward, ‘Know your customer' would not only become a key imperative, but the principle would also extend into ‘Know your customer's business' and even ‘Know your customer's business risk'. It doesn't stop there. Banks would need to know not only the risk, but also the return. Knowing what the ‘return' is, is something today's banks are lacking, he said, noting that no bank today would be able to tell precisely the cost of servicing, for instance, a savings bank account or a current account.
Customer-centric model
Besides, he said that technology must help banks reduce cost, and banks should look at a customer-centric model rather than an employee-centric one. Management information systems and internal assessment systems should be more meaningful, while the senior management of banks should also have a corporate governance structure in place.
He also warned the banks that ‘lenders liability' would become a reality (which means banks would be held to account if their lending practices dent a business.)