The day started with a welcome address by Prof. K. S. Subramanian, Director of SCMHRD who set the ball rolling by particularly emphasizing on the time of this event, which coincides with the MNC Banks growing bigger, Standard & Poor upgrading India’s ratings and corporate India doing well. Hence, Banking is the pillar that would support the growth. Microfinance, on the other hand should change the face of developing nations, as it leads to inclusive growth.
Chief Guest Mr. Pawan Bansal, Minister of State, Finance further emphasized the importance of banking to sustain not just industry but the economy as a whole. Mr. Bansal was particularly happy and encouraged management students to take such initiatives more often. Mr. Bansal also talked about the Self Help Groups (SHGs) and the fact that financial expansion shall lead to social expansion. 42% of population still does not have access to institutional credit. A financial exclusion leads to social exclusion. To sustain microfinance, the cost of capital has to be low. SHGs can not be left in the hands of NGOs alone. Basel – II norms affects the operating risk management and the focus area of the bank shifts with change in socio – economic responsibility.
This was followed by a panel discussion on Micro Finance. The key note speaker for this event was B. D. Narang, Director, NABARD and Ex – Chairman, Oriental Bank of Commerce. He identified that India has the largest pool of manpower which can be turned into entrepreneurs, this condition is further facilitated by high rate of growth of economy. He emphasized the need to look towards the poor as a customer instead of a beneficiary. The effective cost of transaction routed via MFI is still very high.
The discussion on Basel ll was started by Krishnakumar Variar, Director- Risk Solutions & Consulting, CRISIL, who opened the discussion by questioning the need and significance of regulatory compulsions of Basel II norms. It was found that whether banks would have implemented risk systems, may be not, but at whether they should have as a part of best practices definitely, yes.
Basel ll reforms help in implementing a system to reduce operational risks and manage credit risk volatility. Basel ll is a policy which may not directly impact the economy but it is for the survival of the banks in its own. In simple terms, Basel ll proposes that capital needs to be sensitive to risk, hence risk has to be quantified.
The accord directly refers to the need for reduction of operational risks and facilitates the same with standard procedures. Raising the capital adequacy ratio to 12% from 9% increases the safety net towards credit exposure.
The conclave was concluded with a final word by Mr. Narang further showing a light on the future of banking and gearing up for the roadblocks ahead. He defined operational risk in terms of the aggregation of small mistakes that happen during the course of the normal working of the bank for reasons as simple as not knowing the customer among others.
He also touched upon optimum level for Tier I capital, hit on Bank’s balance sheet due to implementation and tax conundrum with respect to operational risk.