The recent collapse of banks across the world has struck fear into the minds of everyone, including Indians. Some questions that have been running through people’s minds include: What will happen to the banks in India? Will they crash? Can they crash? How can I sleep peacefully if I doubt the stability of my bank?
Although we can still vividly remember our grandparents talking about banks as the safest place to keep their money, suddenly the whole idea seems outdated, as do some of their ideologies! So orthodox, so risk averse! Why can’t they realize that we are the generation “X” or “Y” or “Z” that will lead India to be a superpower?!
Orthodox, risk averse… Do these words mean anything with respect to banking? You don’t have to think long to realize that these are precisely the two words that have ensured that the Indian banking system and Indian banks have survived the global crisis and continue to do so.
What does this mean?
The Indian banking system has mainly evolved from business families or groups of business families coming together to start a bank. Historically, Indian companies have been risk averse and highly calculated in their business dealings. The same philosophy was thus transmitted to the banks they founded and in turn defined the Indian Banking System, a system that did not want to grow by leaps and bounds, but rather constantly and gradually. This meant that there was never too much pressure to increase business at the cost of taking unwarranted risks.
This philosophy is also why it used to take months and sometimes years to get a loan from an Indian bank. A common phenomenon was that bank employees delayed loans so they wouldn’t have to burden them with collection or tracking of defaults! Downpour risk? Definitely!
An orthodox management style made the banks not very interested in innovating. Therefore, we could rarely see any innovative product or exotic financial tool in the banking sector. This, in turn, meant that what was available for trading was simple. Run of the mill, proven products that almost everyone understood. At least in that context, we could call ourselves financially literate compared to our counterparts in other parts of the world who couldn’t understand complex financial products like global loans, exotic “F&Os”, etc. and they made a mess of their finances due to their lack of conscience.
The central bank, the Reserve Bank of India has also evolved in the same way. It has been more cautious and conservative in its approach to banking. This approach has meant that the Rules and Regulations framed by the “RBI” have been very strict and have not had many loopholes. The central bank has also constantly faced pressure from private companies and the political system.
The above observations indicate that while our orthodox, risk-averse system may be harsh on the slow-paced “Twitter-age” generation, it is robust and strong and seeks to outperform and survive any crisis. In fact, we can sleep safe with the satisfaction that our banks are safe. Yes, your Indian bank (not The Indian Bank) is safe!
