T+ T-
Indian banks Losing focus - istock.com
Making banks act as insurance agents and mutual fund managers is bad enough. Why rope them into Aadhaar verification?
Of late, the government has started treating the public sector banks like government departments by assigning various government tasks to them. How does one explain the recent government move forcing banks to involve themselves in Aadhaar enrolment and updating work? The government could have engaged operators from outsourced private agencies?
The identified bank officers have been mandated to obtain certification from UIDAI by enrolling and passing an online certification examination against payment of a specified fee. The responsibility of verification of identification documents, produced by people visiting bank branches to enrol for Aadhaar, is also entrusted on the bank officers.
Assortment of functions
The enrolment of Aadhaar has no connection with the banking business and will only lead to the bank personnel being engaged in unproductive activity.
Two thousand years back, the great Tamil poet Thiruvalluvar wrote ‘Peelipey saakaadum achchirum appandanj chaala mikuthup peyin’ which means, “Too great a load of even peacock feathers will break the axle-tree of the cart”. But the policy makers do not seem to be bothered about this sane advice.
Asking banks to engage in non-banking work started long ago. After nationalisation of banks, the government entrusted the work of calculation and payment of government employees’ pension. Later, they were mandated to collect various taxes and dues of the government. These are not banking activities as they involve the scrutiny, calculation and adherencei to government regulations. No bank has dared to ask the government why it has been entrusted with these non-banking activities.
Once the private banks came into existence, they started doing the business of insurance and mutual fund sectors by canvassing for insurance and mutual funds. In course of time public sector banks also followed them.
There is a fundamental flaw in allowing banks to operate in other areas. It is often forgotten that business of banking is different from other businesses. Entities in the business of financial services cannot be equated with that of banking.
Banking and insurance are quite different as well. Insurance is for risk cover for a premium; there is no need to repay the premium. Banking is acceptance of deposit for the purpose of lending and they need to repay the depositors. Repayment depends on quality lending and recovery. An insurer can merely collect the correct premium and provide coverage.
Why should their energy and capability be wasted on insurance penetration — an area in which they have little expertise?. Just because some income can be earned by way of commission, banks should not enter others’ territories.
When banks are supposed to mobilise funds as deposits, is there any logic in mobilising funds for mutual funds? In fact, mutual funds are competitors for banks. Simply because some commission is earned today, should the banks shift their bread and butter to some other industry? Is there not a clash of interest here?
As per Section 5(b) of the Banking Regulation Act, 1949, “banking” means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
Where do we fit the business of insurance or mutual fund or Aadhaar related work here and why does the regulator Reserve Bank of India allow this?
Further Section 6(1) of BR Act has listed the different forms of business in which banking company may engage in and Section 6(2) is categorical that no banking company shall engage in any form of business other than those referred to in sub-section (1). Of course, there is a provision that the Central government may notify any other form of business.
Multiple masters
Banks must be run on sound banking principles and not based on who owns them. We nationalised the private banks as their owners were running them as per their whims and fancies and helping their friends and relatives by using public depositors money. Even so they were engaged in banking .
But government banks are spending their resources on unrelated activities.
Banks have multiple regulators. The RBI, SEBI and IRDA regulate them for banking activities, mutual funds and insurance activities, respectively. By mandating the banks to Aadhaar related work, they will be brought under UIDAI regulation too. The Bible says that one cannot serve two masters. But the government banks have multiple masters.
The writer is a retired banker
Published on May 14, 2018
