The banking sector in India is sinking. Huge non-performing assets (NPA) are not the sole reason of the present ill-health of our banks as is popularly believed. There are various other factors behind this deterioration of health, which are largely unknown to the people.
Yes, NPAs are a problem as the maximum income a bank generates is from lending money to companies, businessmen and individuals for various reasons. But what is quite amazing is that up until a couple of years ago, there were no clear guidelines on who are eligible to get loans or who are not. Even now the guidelines are adequately framed. The existing guidelines are basically the results of knee-jerk reactions of the authorities from time to time after a Vijay Mallya or Nirav Modi flees the country without repaying the loan. No concerted effort so far has been made to issue clear instructions to pick the eligible and reject unwanted borrowers.
When NPAs started piling up, the banks started looking for other sources of income. The banks found a lucrative way to maintain its income by joining hands with various private insurance companies. Though they made their entry in Indian market earlier, the private insurance companies found it difficult to reach to the people and collect data about potential customers. It found banks as perfect foil to its endeavour. At the same time the banks found the tie-up lucrative as it was supposed to get 16-17% (approx) commission by selling an insurance policy to its customers. It would create a win-win situation for both the sides, or so they thought.
But the homework was not done properly. Without realising how neglecting loan reimbursement service will affect the banking sector, banks asked all its staff to sell insurance policies to its customers. The matter does not end there. Targets were set for the bank employees for selling of the policies, a job for which they were not appointed. To make the matter worse, targets are being set in terms of face values of the policies, not in terms of number of policies sold. So these days all the energy of the bank employees are being spent on convincing customers to purchase policies rather than concentrating on usual bank works. Coupled with reduction in jobs in this sector, many young bank employees have resigned from services because of this undue pressure. As a result, there is currently a huge shortage of manpower in this sector.
Shortage of manpower is preventing the banks from reaching defaulters. Moreover, a section of unscrupulous higher ups are virtually forcing the employees associated with loan recovery to sale insurance policies. They are even being instructed (verbally) to provide defaulters some reliefs if they are willing to take policies.
Banks tie-up with insurance sector started in 2003-04. Since then banking sector is slowly becoming an agent of insurance companies. There is nothing wrong in banks selling various insurance policies related to life, health, etc. Initially it was decided that banks would provide data of prospective clients to the insurance companies. But over the years, it is the bank employees who are being forced to work overtime as insurance agents. How did this happen? Whose interest is being served by this forced conversion? Usually no one is ready to answer these questions.