Worldover, the financial institutions (FIs) are hubs of financial activity. Developmental financial institutions (DFIs) in India too need to become the focal points of hectic economic activity. As a small beginning, players such as ICICI are trying to change with the times, lend a facelift to their roles and rejuvenate their operations by grabbing quite a few business initiatives.True, our FIs are keen to break away from the sheltered past and have diversified portfolios. They want to venture into new avenues and step up their presence in the global financial markets. ICICI and some others are going westwards and are kicking off innovative e-initiatives. But, this is not enough. Though FIs are attempting to widen their customer constituency by roping in the non-resident Indians (NRIs), there is still something that is missing in the picture.
What is it? It is the much-desired autonomy for the FIs. They need to enjoy operational and functional autonomy. For, only in such an autonomous dispensation that the FIs will be able to take business decisions based on merits of the case and not act as proxies for bureaucrats and politicians.
Only recently the government has relaxed a few controls and allowed some degree of freedom to the FIs to diversify their portfolios. With the government giving the go-ahead for FIs' e-commerce plans, most FIs have ventured into that territory. They are also into developing a variety of sophisticated finance instruments to cater to the burgeoning NRI investors. And the FIs are seriously looking at mobile banking and universal banking.
Fine. But the issue refuses to die down. Why are the FIs not able to take commercially viable decisions and become market-driven entities in their own right?
Another the question here is whether the Indian FIs are in a strong position to compete with their foreign counterparts. For, the playing field is fast changing. The line of demarcation between the FIs and banks is getting blurred, competition is hotting up and spreads are getting squeezed.
So, the FIs need to take the right initiatives and diversify into various fee-based services. They should attempt to become universal banks. Sooner this happens, the better it is.