The money that doesn’t pass through the banking system doesn’t get accounted as national wealth. Thus the development of the banking habit is a high priority.
Vying with developed countries to introduce sophisticated banking products is only part of the story. It is their end product of economic development. In our case development is the dire need. Banks have to concentrate on maybe the rudimentary functions of accepting deposits, ensuring the safe return with the agreed additive, after utilizing those deposits for its lending activities. This behoves recovery of every cent that is lent out of public deposits.
Sound lending in short has to be adopted. Certain amount of default is part of the risk but this must be minimised.
Banks are like multi-shops and are enhanced by fee-based activities. The role of the banks in capital formation is the prime concern of this article.
Until recently, interest on bank deposits was a given factor. Attracting more deposits was an index to the high calibre service of the bank. The recent development is the advent of aggressive marketing to attract and retain deposits even by price discriminatory methods.
Seeking sophisticated products more suited to developed countries may not bear the desired results unless overall economic development keeps pace. Banks have a pivotal role to play in this key aspect.
Local ideas and practices which are yielding very encouraging results around us should be adopted by the banks. It will be institutionalizing crystallized practices very much in vogue in the unorganized sector. Unorganized sector is not a disorganized sector. It does not come under an organization or a set of organizations. Yet it thrives with the numerous independent individuals as its players and there is cohesion and unison in their activities.
There is an unseen golden thread running through the whole gamut of this unorganized sector. It is a parallel phenomenon which cannot be identified or located as a single unit or organization that could either be broken or legitimized. The persistence is more due to informalities, locational convenience, familiarity of the players. Defaults may be disastrous without legal recourse but social pressure gives the solace, write-off is not an accounting formality; it is a reality.
There are numerous other features which enable them not only to exist side by side with the organized sector consorting or maybe in cahoots with the parallel market and thriving as a challenge to the unresponsive state machinery.
If the temporary overdraft facility is denied by the bank the businessman does not wind up or collapse, he has alternative sources of aththamaru (Kaimathu) and the omnipresent pawn brokers, the cottage industry of those with money to spare.
One important instrument of capital mobilization, very much in vogue in the unorganized sector is the “Cheetu”. As far back as the 1930s the Sir Sorabji Pochchkanawala Banking Commission recommended this, up to now no financial institution leave alone the banks, have thought it fit to make it their product/ service. Every bazaar has its cheetu groups, as are the residential areas, offices, clubs, etc where social interaction takes place.
What is required is a reliable manager to run it efficiently and a responding /reciprocating beneficiary members who join the cheetu. Surely the banks can easily fit into this more than the finance companies which have earned a very bad reputation.
Banks have beneficial accounts for the senior citizens allowing higher rates and a ceiling of Rs 2,000,000. There are long term pension accounts too.
In our country the dowry system is prevalent on a national scale. It takes various forms, some virulent nevertheless the newlyweds get a substantial amount in hard cash, some given as bank deposit certificates but mostly in hard cash to enable them to start family life anew. Dowry is given to enable the newlyweds to have a sound financial foundation.
Some parents to extricate or free the responsible bridegroom from his filial responsibilities even allocate funds for wedding expenses including money for the nuptial requirements and ceremonies, and other expenses. Maybe it depends on the wealth magnanimity, etc of the bride’s parents and bridegroom’s market value.
Banks can easily prevent the potential hoarding here if a facility similar to the senior citizens with provision to render it perennial if possible by attractive interest rates if they agree to keep them for long. It can in a way be the back up funds for long term investments of the banks or the reverse of the long term residential loans or the medium term loans for consumer durables including vehicles. This facilitates portfolio management of the banks. Interest as a reward for waiting could be adopted.
Bankers have to look around for what is happening in the society they live in. Most of the economic and financial activities remain outside the structured banking environment.
A banker need not be a highly intelligent person. Suffice it is for him to be trusted by the clients. His advice must be down to earth and not intelligent short cuts. There are lots of other professions for that. Let the banker be a trustee receiving as much of the deposits as possible and do the primary function of capital mobilization away from the activities of the casino or aiding and abetting quick money wallahs and other operators.
(The writer is a resident at Sivan Lodge, Urumpirai – West in Jaffna.)