Eco Survey flags 'disproportionate dwarfism' of Indian banks

New Delhi: Flagging "disproportionate dwarfism" of Indian banks as compared to the size of the economy, the Economic Survey on Friday called upon public sector banks to become efficient and support economic growth rather than "pullback lending", for India to achieve the goal of becoming a $5 trillion economy. The Economic Survey 2019-20 tabled in Parliament by Finance Minister Nirmala Sitharaman noted that despite nationalisation a significant portion of the poor remained unbanked till 2014.

The survey also cautioned that "inefficient PSBs can severely handicap the country's ability to exploit the unique opportunities" it can utilise today. It suggested use of FinTech (financial technology) across all banking functions and employee stock ownership across all levels to enhance efficiencies in public sector banks, observing that with the cleaning up of the banking system and the necessary legal framework such as the Insolvency and Bankruptcy Code, the banking system must focus on scaling up efficiently to support the economy.

The survey said bank employees should be given stakes through an employee stock ownership plan (ESOP) together with proportionate representation on boards proportionate to the blocks held by employees to incentivise them and align their interests with those of all shareholders.

It also recommended that a GSTN type of entity should be set up to enable the use of big data, artificial intelligence and machine learning in credit decisions, especially those pertaining to large borrowers. The survey also called on PSBN (PSB Network) to use technology to screen and monitor borrowers comprehensively and at length.

"As government is the owner of all the PSBs, government has the right to use the data that PSBs generate during their business. Therefore, the government as the promoter must set up this entity that will aggregate data from all PSBs to enable decision making using big data techniques," said the survey.

Apart from utilising data from all PSBs, which would provide a significant information advantage, PSBN would utilise other government sources and service providers to develop AI-ML ratings models for corporate.