[Business Today]

Published date: 26 December 2010

Just as we were putting this special issue of Business Today to bed. Thomas M. Hoenig. President of the Federal Reserve Bank of Kansas City, wrote a provocative essay titled Too Big to Succeed in The New York Times, noting that America’s five largest financial institutions are 20 per cent bigger than they were before the financial crisis. “Like it or not, these firms remain too big to fail,” Hoenig wrote. Much of the debate centres on the perception that the big us banks have somewhere along the way forgotten that they have an obligation to the public good. Banking is in bad odour in the United States.

Citigroup CEO Vikram Pandit, who projects a less predatory image with his one-dollar-a-year salary, said in a September speech that banks are an integral part of every economy and society: “And their role is not merely to further people’s material well-being-though that is vitally important. The value of banks runs deeper. Human rights and democracy reach their full potential only where there is economic inclusion for all.”

Soaring rhetoric, indeed. The good news is that India’s banks are trying to achieve more of that financial inclusion, and that they have grown quietly and steadily even during and despite the global meltdown. Under the RBI’S steady gaze, their interest rates except for savings accounts- are now deregulated, but their asset quality, risk management, and lending norms are prudent. The annual BT-KPMG Best Banks Study, starting on page 61, records that the assets of India’s banking industry grew more than five-fold from $250 billion in the decade to 2010. But, as the RBI Deputy Governor K.C. Chakrabarty cited in a speech last month, nearly half the country is unbanked, only one-twelfth of our 600,000 villages have access to finance, and up to 145 million house- holds are excluded from banking. So our banks-private, public-sector and foreign- have to juggle those social priorities with the urgent need to finance infra- structure and keep liquidity coursing through our virile economy’s veins.

ICICI Bank’s Non-executive Chairman K.V. Kamath thinks size matters in achieving those goals. “Our four or five largest banks are nowhere near China’s top five banks,” he told me. “That is where we will be about 10 years from now. Our big banks will have to be that large and have assets of about a trillion dollars” to reach all those unbanked people. India’s banks will also have to recruit and train huge numbers of employees, and raise a lot more capital, Kamath said. With growing international appetite for Indian paper, he thinks Indian banks are poised for a dramatic shift. “It will be an order change,” he says.

There was much bad news last fortnight, with the 2G licence scandal ballooning alongside a new housing finance loan scam. Our incisive reporting and analysis of corporate corruption and other jiggery-pokery forms a package that also includes the gripping tale of how poet, screenwriter, play- wright, author and agitprop master Muthuvel Karunanidhi has fathered a family business, growing DMK Inc. over the past 40 years to a media-to-air- line juggernaut and giving “political economy” a new meaning.

There was good news, too India’s GDP grew at a cracking pace in the second fiscal quarter, and Bihar re-elected a government that promises to switch the lights back on in our darkest state. And our Rural Retail special report completes a cheering narrative of how small-town India is spending big and dreaming bigger.