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 | Financial Services: Towards a Global Approach | | 24.11.2003 | | India Economic Summit 2003 | Opening the discussion, Shubhashis Gangopadhyay, Director, India Development Foundation (IDF), India, said that India has a strong desire to be a leader, with a growth rate of 8-10%. In order to achieve this, two things are required: bank lending to small and medium enterprises (SMEs) must grow and a better risk-trading environment is necessary to enable banks to take risks. Bankruptcy laws need to improve so that bank lending errors can be quickly corrected.
Georges L. Ugeux, Chairman and Chief Executive Officer, Galileo Global Advisors, USA, said that the breach of trust that has affected the financial services sector globally needs to be repaired quickly. In India, the government needs to address the issue of ownership: there should be consistency in FDI rules between the banking and insurance sectors. The fear of FDI will be conquered once Indian banks go outside their borders and assume regional leadership. He also warned that the world is likely to see the emergence of regulatory competition with financial services firms moving to countries with lower regulatory impediments.
Vijay Mahajan, Managing Director, Bhartiya Samruddhi Investments & Consulting Services (BASIX), India; Social Entrepreneur, said that the financial services sector has turned its back on small borrowers. The vast majority of the poor but economically active section of the population does not have access to financing from the formal financial services sector. Not only has the percentage of banks lending to small borrowers declined during the period of liberalization, but the number of small borrowers has also declined. This indicates the sector’s regulation shortcomings.
Ian Gomes, Country Managing Partner, KPMG, India, said that while progress has been made in financial sector reforms in India, reforms are not moving at the desired pace. In particular, government ownership remains high and there are restrictions on foreign ownership. While the government has recently announced that 74% FDI will be allowed in banks, he said that the banks on offer are not necessarily the ones that foreign banks want to invest in.
Joydeep Sengupta, Global Partner and Head, Financial Services, McKinsey & Company, India, said that the financial services sector in India is about to enter an era of unprecedented growth. The six "seeds" that are likely to fuel such growth are the trebling of the number of middle and high income households over the next decade, the rise of the modern consumer, real sector reform, the strengthening of the banking sector, widespread use of technology and the emergence of SMEs. However, he warned that there are some "weeds", such as the high cost of intermediation, the growing stock of non-performing loans (NPLs) and the polarization of the banking sector that could affect its growth.
Uday S. Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank, India, gave his views as an insider. He said there are two realities that are shaping the future of the Indian financial services sector: the reduction in interest rates and the boom in jobs. With the world’s jobs moving to India and the cultural changes driven by the greater penetration of television, Indians have moved from being a nation of savers to a nation of investors and spenders. He said that the regulatory regime in India has ensured a smooth transition to private sector participation in the financial sector. An integrated approach across markets is now needed.
Concluding the discussion, Augusto Lopez-Claros, Chief Economist and Director, Global Competitiveness Programme, World Economic Forum, said that the financial sector faces the same challenges across many transition economies. Responding to a question on the cost of recapitalizing India’s financial sector, Sengupta said that it would not be as much as in some other Asian countries, because the Indian bank loans to GDP ratio has remained low relative to other countries where it has reached 100%.
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