Changing Landscape

The Indian banking sector is poised at an interesting juncture. The Reserve Bank of India last year showed its displeasure with the professional and personal actions of several marquee CEOs, leading to changes in leadership in three private banks.

Two other private banks, which are doing exceedingly well, will see changes in their leadership because their iconic leaders will be retiring. The central bank has made its discomfort clear about the compensation packages of high-flying bank CEOs and made suggestions that could result in big changes in bonuses and other variable incentives given to them. The regulator has suggested that bonuses should be more tightly linked to performance, and should not be just a reward given out by a friendly board.

If several private sector banks have been reprimanded, most public sector banks are still trying to get out of the morass they find themselves in. While the RBI, nudged by the government, has removed six public sector banks from the prompt corrective action framework, on the ground this might not actually help them much. Their balance sheets are still not in a shape where they can afford to give out big business loans, unless they get enormous capital infusion.

Meanwhile, after the successful merger of the State Bank of India with its affiliates, the government has announced other mergers - Bank of Baroda with Vijaya Bank and Dena Bank. This will see a well run bank combine with a bank with middling performance and another that is deep in the red. How this will precisely help is unclear. The finance minister has also announced that there would be more mergers going forward - he wants fewer but bigger and healthier banks. While the first two are a given once the mergers take place, whether these will result in healthier banks is open to debate. Given that nothing has been done to reform the functioning of public sector banks, whether this will not just result in a number of big bad banks is the worry.

The banking sector - in fact, the entire financial sector - is seeing a major change because of technology as well. Fintechs are helping banks and also trying to be competitors. Currently, regulations do not allow fintechs to really infringe on banking territory, but at some point that may not be the case.

The BT-KPMG Best Bank Survey has evolved quite a lot over the years. It started off choosing winners based purely on quantitative criteria, but it has now added jury categories. It has also expanded to add fintech award categories along with the original banking categories.

While mostly bad news on the banking front dominates the headlines these days, the fact is that a handful of banks - and their leaders - have been performing exceptionally well in the past few years. This came out strongly in the jury awards when a healthy discussion took place on who would be the ultimate winner in a particularly category from two equally strong contenders. In one category, the jury finally decided to choose two leaders as joint winners.

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