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Against the recent measures taken by the RBI, the Finance Ministry and commercial banks on enhancing credit off take in the country, the overall banking paradigm in the country requires a fresh look, says a policy document from the Kochi-based Institute of Small Enterprises and Development (ISED).
Banks in India have often been criticised in relation to their dual role of profitability and social responsibility. Such criticism is natural especially in the context where the industry is public-sector dominant. The problem lies essentially with the culture of banking n India, and much less with the managerial decisions of individual banks, ISED policy document said.
Vertical model
The document argues for a vertical model of ‘Responsible Banking’, where the commercial banking network is reorganised under an integrated value chain funding model. The central point of this model needs to be an MSME Hedge Fund, created by the commercial banks singly, and in combination with the RBI and the DFIs.
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The ISED Policy Brief entitled ‘MSME Finance: Searching the Nuts and Bolts of a Responsible Banking Model for India’ is based on a web lecture delivered by P.M.Mathew, ISED Director at the National Institute of Bank Management, Pune in connection with its golden jubilee celebrations.
The policy brief pointed out that a critical mass can be created through CSR funds of individual banks. This would lead to channelisation of resources for knowledge banking strategies, knowledge creation, and for supporting/initiating projects that are relevant during contingencies such as the current pandemic.
Unprecedented stress on MSMEs
The pandemic situation has created unprecedented stress in the unorganized sectors, especially the MSMEs and livelihood activities. The key question relates to the strategic approach to move forward: whether to have a ‘fire-fighting’ approach, or to develop a ‘business case’ from such an objective situation. Banks, in any case, need to find a business case in whatever they do. The banking industry needs radical restructuring, the Policy Brief said.
The institute also advocates a National Programme of Responsible Banking with a focus on achievement of a larger goal of inclusive finance.
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