Bankers are not demons nor are they demigods, they are humans

I am a banker. I work for a Public Sector Bank (PSB) . PSBs aren’t in good health for last 4-5 years. They  are struggling with mounting Non Performing Assets ( NPAs) and tepid business growth. They are losing market share, though loss is gradual but portends what Mr Uday Kotak has prophesied.  Nirav Modi episode, a dreadful event, that occurred in PNB has damaged badly the reputation of PSBs among the common people. And bankers in their eyes  have become eccentric species just a shade below from being called as demons. What has happened in PNB hurt me as badly as it does anyone else who is not a banker.  Media, especially electronic media , has successfully created a damaging perception in the public about Banks and Bankers trying to stereotype bankers as demons and PSBs as blood sucking, inefficient and callous institutions mired in corruption and sycophancy. What has happened in PNB is a fraud, not banking, and all those involved deserve severest punishment. 

I request to all my friends, who are not bankers and banker friends, as well, not to get carried away by rhetoric of media persons and by some so called experts, who have no skin in the game, before you understand what banks do. Banks you usually understand is a place where you put your deposits, take loan to buy a house , buy a car, start a business or expand business and send  moneys  to other cities and countries for your children, parents or friends and sellers. Banks not only do all this but much much more. What is that much more I am talking of and how is that relevant for you to know? I will try to explain in simple language what much more banks do that lands them most of times in trouble. Banks, in any economy, are drivers of economic growth. Economy of a country  never stays on growth path continuously. Historical economic data shows that phases of recessions , depressions and high growth are usual courses in  country’s economic journey. Banks are caught in a knot when Governments and Central Bank of the country portends vaguely that economic growth is about to slowdown and may likely go  into recession and,  if that turns true, will cause many job loses, big reduction in consumer spendings and substantial revenue loss to the Government. No government would like to see that situation to happen. Government and Central Bank , with genuine concern, employ various fiscal & monetary tools which are in their possession to stop economy from falling into recession.  One of tools Central Bank employs under such conditions is, it enables commercial banks through policy prescriptions  to increase their lending to businesses and also increase consumer lending. This is a usual prescription adopted by nations across the globe. It is done with noble intention to tide over the bad phase in economy with expectation that benefits will outweigh damages, and damages caused can be managed well once economy come back on growth path. Economics is not a discipline of science in the sense as physics is.  So, how the prescription plays on the ground will be different in each phase for the same country. A big damage is caused to commercial banks if the prescription does not play on the ground as was envisaged. The longer duration of economic slowdown than expected causes a big damage to commercial banks. 

 

There are many instances of banking crisis that occurred around the globe. The more recent one which was beamed into our drawing rooms - “Sub Prime Banking Crisis”in USA. Something similar what I said above lead to the crisis there. And something similar has lead to the present crisis in PSBs in the country. 

 The economic turn down in USA of 2008 has a lot of things to do with  Banking Crisis, big or small, in different countries around the world including India. The present situation in PSBs in some manner is fall out of economic turn down of US and later global economy from 2008. You may remember that India was one of the country which tide over the crisis of 2008-09 , fairly well. The role of commercial banks in India, especially of PSBs, to stop impending economic slowdown, was laudable. But banks were taking higher risk exposures however within the rules. With  slow down in economy, 2G scam, Coal Scam etc, the projects that banks  had lend got delayed or halted their operations which had deleterious impact on banks. The situation worsened with the passage of time and PSBs stand today on mountain of NPAs. I believe you have understood what I meant to say by ‘banks do much more’. It may be of some help for you to know how banking crisis gets germinated. It is very difficult to foresee banking crisis. There were perhaps only two persons in the world, Raghuram Rajan and Friedman, who had raised doubts about increasing real estate  prices and they believed that higher prices were artificial, supported by active mortgage lending by the Banks and fall out of which could be disastrous, before sub prime crisis broke out. I hope my little effort will make you a bit more informed about banks and bankers to frame your opinion about them.