Economic Survey 2020: PSBs need a techtonic shift

MUMBAI: State-run banks hobbled by soaring bad loans and poor performance can look forward to have a new life with the help of fintechs to fight back and use tools like GPS to conduct better due diligence on borrowers to play a meaningful role in India’s march towards a $5-trillion economy, the Economic Survey said.With data and analytics taking the centre stage in almost all industries, state-run banks can pool all their data into one entity like in the case of GST Network, to improve their analytical capabilities that could provide them an edge over their private peers, it said. Data sciences, machine learning and artificial intelligence could help the banks, which have more than 70% market share, to make a difference to the economy, it said.“PSBs have many important ingredients in place to cater to this new demand,” said the survey. “They have local market insights and relationships based on operating histories spanning many decades. Their geographic footprint is vast. PSBs, however, need significant investments in capabilities to exploit the coming datarich environment in India. Analytics based on market data are quite capable of providing accurate predictions of corporate distress.” 73825376 PSBs have been dragged down by bad loans over the past few years and they compare poorly with their private sector peers in terms of returns to investors. Because of this, their market valuations are also lower leading to losses to the government and wasting of taxpayer money.Public banks accounted for 85% of bank frauds, while their gross non-performing assets exceeded Rs 7.4 lakh crore in FY19; an amount which exceeds government’s entire infrastructure expenditure in the fiscal. Similarly, just by plugging PSBs’ loan losses, which came at Rs 66,000 crore in FY19, the government “could nearly double the nation’s budgetary allocation for education,” it said.73825465 Estimates show that every rupee of taxpayer money invested in PSBs in 2019 lost its value by 23 paise, while for the private sector it created value.While banks are getting merged to create bigger ones, the collaboration on data could be a game changer.“PSBs will be able to enhance efficiency by fulfilling their role of delegated monitors if all the PSBs can pool their data into one entity,” it said. “Private information held by their corporate borrowers leads to contracting problems, because it is costly to assess solvency of a borrower or to monitor her actions after lending has taken place.”The survey proposes that these banks stick GPS devices on pledged assets to track the location of assets.

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