On 22nd June, Mr. Arup Chaudhuri interacted with the students of TAPMI and delivered a lecture on the topic “Yesterday, Today and Tomorrow of Banking.” He believes like everything else, to understand the performance of the banking sector in the future, the past needs to be scrutinized. Only when one studies the past can the future have minimum errors.
To begin with, he gives us a glimpse of the different banking systems prevailing in today’s world. The banking structure of Bangladesh is not advanced as most countries. It is mostly dominated by trade financing by outsourcing of garment manufacturing. The country has very cheap labour and since it outsources garment making, export banking is a dominating feature. On the other hand, we have the banking system of Islamic countries. These countries are governed by the Shariyat Law, according to which the banks cannot take interests on the sum loaned. The bank then treats the customers as shareholders of the bank. Instead of loaning the fund directly, the bank purchases or funds the needs on behalf of the customer. The price is repaid to the banks by the customers at a premium. Thus in banking it is important to consider the bank’s perspective.
Another important aspect according to him in banking is the technology used. The past technology used becomes part of life and has long lasting effects on the future generations. India is developing at a fast pace and the banking sector is keeping up. The technology used in India’s banking system should be affordable and user-friendly so the large population can reap its benefits. The future of banking will be cashless transaction in the lines of the already prevalent Bitcoin. Online transactions are increasing with every passing day. Though India is developing a little slowly as compared to other countries but when the pace picks up she moves like a juggernaut.
The problem of differential interest rates or bad lending practices giving rise to Non-Performing Assets (NPA) can be traced back to the time when only moneylenders existed. Giving more mortgages without proper background checks causes a rise in more defaults. This “money lender” concept of giving loans is not new. This is why it is important for the banking sector to keep an eye on the past to learn from the mistakes. After the industrial revolution, the money lenders formed a syndication which later evolved to form a bank.
He stated, that one of the major events in the history of banking is the implementation of the Basil Formula. After the world war 2, when Hitler had failed, the Swiss realized that all the loans they had given to Germany were now non-performing assets. The Swiss bank met in Basil to tackle the issue and formulated a policy. The policy had features like the capital adequacy ratio. This capital adequacy ratio, he said, increased mergers. Mr. Chaudhuri says that Basil 3 was done in a haste to help USA to oversee market risk and operational risks. The policy needed more work to increase its effectiveness.
Mr. Chaudhuri believes that the banking sector knows that it is growing and that is why it is funding investor education initiatives so that people grow with them. Though fraud and Ponzi schemes remain a major challenge, India has a lot of potential and this is just the beginning. He firmly states that for any banking sector to grow in future, they need to keep an on the past so as to not make a mistake today.