The Hindu Business Line : Bankers feel the heat of rising expenses

Problem areas
Income from treaury operations drying up.
Technology adoption is pushing up operating expenses.
Collection and remittances are becoming less relevant.

MR P. K. GUPTA

Kolkata , June 14

If the country's middle class worries about mounting costs, can its bankers be far behind? The banking community is not immune to the feeling that expenses are on the rise — and on multiple fronts. The prescription, as Mr P.K. Gupta, CMD of United Bank of India, put it on Wednesday, lies with plans to increase efficiency and augment income.

Mr Gupta, who set in motion FICCI's banking conclave on Wednesday, listed the areas that are challenged by increasing costs and decreasing returns. Topping the list are issues faced by banks' investment portfolios, which are to be seen in the context of rising interest rates.

The traditional services of collection and remittances were becoming less relevant in view of the introduction of systems such as CBS and RTGS, he pointed out, adding that income from treasury operations was drying up.

Big spend on IT

Interestingly, the cost of technology is pushing operating expenses to higher levels, a trend that is evident in the backdrop of huge spending by banks in upgrading their IT infrastructure.

"Introduction and absorption of technology are creating their own stress on the banking system," the UBI chief said even while he agreed that effective use of IT for growth of business and improved decision making were equally important challenges for banking entities. Bank managements are responding to these issues in various ways. Distribution of third-party products, including MFs and insurance, are emerging as opportunities for increasing non-interest income.

Technology is in a way helping banks to bring down the cost of transactions and releasing manpower for strengthening marketing functions. Also, asset liability management and customer relationship management have become easier with the help of IT.

Mr Gupta, who also underlined the scope for enlarging the client base of banks, referred to a McKinsey study that observed that only 40 per cent of the country's households have signed up as borrowers or depositors. Half of rural India does not borrow on account of poor access or capacity to borrow. A major section still borrows from moneylenders, it is pointed out.

Earlier, Mr C.K. Dhanuka, Chairman, FICCI (Eastern Region Council), observed banks need to explore opportunities in financing agri-businesses at concessional rates. "There is an urgent need to create an alternative lending mechanism to relieve overreliance on the banking sector for financing infrastructure," he added.

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