Banks Urged To Raise Capital, Cut Costs For Affordable Credit

The public sector banks were directed to follow a strategic approach in raising capital and reducing costs of intermediation so that banking products, particularly credit services, become cheaper for the customers. M Nagaraju, the secretary of the Department of Financial Services, emphasised these priorities when addressing bankers at the 77th annual general meeting of the Indian Banks' Association (IBA) on Monday.

"Each bank needs to identify its focus on building capacity and planning road maps for appropriate and timely capital raising or efficient allocation of resources, besides striving to bring down intermediation costs," Nagaraju said. They reflect the government's push for improved financial access and affordability, especially among retail and small business borrowers.

Capital Raising and Consumer Impact

For consumers, efficient mobilisation of funds by public sector banks can prove to be the watershed. Proper buffers of capital will strengthen the ability of a bank to lend at lesser rates. This can be of special appeal for those requiring housing loans, education loans, or small enterprise loans. Banks are then able to better endure financial shocks through reinforcing buffers of capital, thus adding stability to the banking system.

Reducing the costs of intermediation is also a significant move that could consider lower fees on financial services and lower credit products. Intermediation expenses involve fees like loan processing fees, handling charges on accounts, and some other operating expenses. With higher efficiency in such activities, banks can reduce these expenses, and eventually pass the benefit to the customers in the form of lower interest rates and reduced service charges.

For consumers, the focus on innovation and efficiency can mean better digital banking services, faster loan approvals, and improved fraud protection. Sophisticated technological infrastructure can also enable banks to introduce tailored products that meet diverse customer needs.

Collaboration and Technology Integration

Nagaraju also emphasised the necessity of collaboration between public sector banks in areas such as cybersecurity, risk management, and fintech innovation. He suggested that the banks adopt common technological platforms to be more efficient and secure.

"The synergy arising out of these will be able to nurture them individually while raising their position as a group in improving the services," Nagaraju stated. Collaboration in shared practices and usage of resources helps banks expedite the adoption of modern technology such as fintech-based solutions, AI, and cloud infrastructure.

For consumers, this model can translate into better access to digital security tools, secure transactions, and better fraud detection. Moreover, enhanced applications of AI in banking can provide customers with personalized financial advice and quicker dispute resolution.

EASE Reforms and Banking Improvements

Nagaraju also highlighted the finance ministry's Enhanced Access and Service Excellence (EASE) reforms agenda, which highlighted improving the quality of public sector banks. He called upon the banks to take the employees of all levels on board to implement the reforms in an effective manner.

The EASE reforms focus on improving customer service, encouraging digital prowess, and strengthening governance among public sector banks. Nagaraju stated that the reforms have already seen improved capital buffers, improved asset quality, and enhanced governance culture in the banking sector.

For customers, the enhancements offer confidence that their savings are more secure, and they will receive improved customer service by virtue of ease of processes and improved digital banking interfaces.

What It Means for Consumers

The focus on cost reduction, technological advancement, and capital raising is positive news for consumers. Banks looking to cut operating costs and improve online services will make the borrower more costly loans, quicker loan processing, and safer online transactions.

Also, improved risk management methods could reduce the likelihood of banking dislocations, conferring more financial stability. With their financial foundation enhanced and innovative strategies, consumers would have more competitive banking products and better service quality.

BUY OUR LATEST ISSUE ON AMAZON