The author offers a rationalistic opinion on the recent proposals of the union government to offer banking licenses to NBFCs and to extend surgical treatment options to Ayurveda practitioners – both set to ruffle quite a few feathers among stakeholders and public at large.
In what appears to be a monumental decision in the context of the on-going fund-crunch situation that our country is passing through, the internal working group of the Reserve Bank of India has suggested that large corporate and industrial houses may be allowed ‘to promote banks’ by amending the ‘Banking Regulation Act, 1949.’
In other words, it proposes to allow Indian corporate houses into banking. In its bid to bring about sweeping changes in the financial sector of the country, the RBI is contemplating to allow large non-banking financial companies (NBFCs) with a creditable track record for over a decade or so in possession of assets worth Rs 50,000 crores ‘to convert to banks.’
The financial experts have opined that the proposed step to allow selective NBFCs to function as banks ushers re-entry into commercial banking in India after the historic nationalization of 14 banks in 1969. It would be redundant at this stage to reiterate the Himalayan benefits accrued to the country’s economy in the aftermath of bank nationalization. In 1951, when five-year plans came into existence there were almost 400 commercial banks working under private sectors. These private banks used to work for their own agenda and did not contribute much in providing bank finances to the small and marginal farmers despite the government of India’s thrust to boost the agricultural sector.
Nationalization of banks enabled credit to flow in the field of agriculture, fishery and other small-scale enterprises. Most importantly, the shift from class banking to mass banking became evident with the increase in rural banks from 1,833 (in 1969) to 35,206 in 1991 and by 2010 the growth became phenomenal enhancing public confidence. Earlier, Indian commercial banks were catering to only the large and medium scale industries of urban areas that were ready to pay loaned- money back to these banks at a higher interest rate in comparison to the rural areas. The industry’s share in credit disbursed by commercial banks almost doubled from 34 per cent to 68 per cent up to 1968; agriculture received less than 2 percent of total credit.
Our sound banking system helped us to withstand the recession in 2009 more effectively than many other progressive countries justifying the then Prime Minister’s assurance, “Countrymen, your money is safe in bank.” The present RBI Governor, too, has assured that the “banking system is sound and stable, and one incident at a cooperative bank should not be used to generalize the health of the entire financial system.”
In view of such assurances from different authoritative quarters and in the face of healthy growth of aggressive private banks alongside nationalized and cooperative banks, it would be prudent to understand the implication of NBFBCs that are being proposed to be given banking licenses. A Non-Banking Financial Company (NBFC) is defined as a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares, stocks, bonds, securities issued by the government. In simple terms, Non-Banking Financial Companies are financial institutions that do not possess a banking license from the RBI but still provide bank-like financial services like loans, credit facilities etc. Their need however still arises since the existing banking structure cannot fulfill the financial needs of the consumers due to various constraints and compulsions.
A section of financial experts have opined that allowing corporates to promote banks can be an important source of capital. In a capital-starved economy like India, this makes sense. Further, these corporates can bring management expertise, experience and strategic direction to banking. However, financial pundits like Raghuram Rajan and Viral Acharya, ex-Governor and ex-Deputy Governor, RBI, respectively, have been highly critical of the proposal dissecting the loopholes of the proposal that may endanger the economy of the country. A few other experts have stated that the corporate governance in Indian companies isn’t up to international standards and “it will be difficult to ring-fence the non-financial activities of the promoters." There will also be a risk of promoters giving loans to selves.
Going beyond the banking issue, in a move that has sent shock waves in the medical community, the CCIM (Central Council of Indian Medicine), with the approval of the union government, has brought out a notification that will allow Ayurveda doctors to be trained to perform a variety of general, surgical, ENT, Ophthalmology, Ortho and dental procedures etc. The notification includes 39 general surgery procedures and19 procedures involving ear, nose and throat by amending The Indian Medicine Central Council (Postgraduate Ayurveda Education) Regulation, 2016. The Indian Medical Association (IMA) has strongly opposed the notification and termed it satirically as “Khichadification,” a “retrograde step,” a “confused mix of medical education and practice.”
In a hard-hitting reaction, the IMA has asked the government to withdraw the notification as it threatens to endanger the lives of gullible, unsuspecting patients. The long list of modern medicine and surgeries fall under the purview or ambit of modern allopathic medicine, as per IMA. The IMA further questioned if Ayush has its own anesthesia drugs and procedure. They further stated that Ayush is not equipped to take post-operative care and infection control since they rely on antibiotics etc falling under allopathic school of medicine.
Empirical experiences reveal that any new move or proposal, especially in India, faces stiff opposition and cacophony. There was huge hue and cry when nationalization of banks was conceptualized and implemented. In the same breath, process of mainstreaming of Ayush to mitigate human resource shortage in healthcare had met with severe opposition when initiated in 2015. Today, Ayush doctors form the nucleus in all categories of hospitals across the country.
To wind up, let’s not count the chickens before they are hatched and wait for the implementation of both proposals. Success or otherwise of two proposals lies hidden in an unforeseeable future.
(The author is a retired civil servant with a post-retirement stint in banking. The views expressed in the article are his own.)
