The Economic Survey 2019-20 highlighted the need for state-owned banks to use big data and artificial intelligence to detect frauds and defaults, besides launching employee stock ownership schemes, to increase efficiency.
The document, which was prepared by chief economic adviser Krishnamurthy Subramanian and tabled by finance minister Nirmala Sitharaman in Parliament on Friday, said the banking sector must scale up in tandem with the size of the Indian economy to support growth and development.
The growth and efficiency of state-owned lenders, which account for over two-thirds of the banking space, is imperative for India to become a $5-trillion economy in the next five years, survey added.
However, inefficient public sector banks can severely handicap the country’s ability to make use of the unique available opportunities, and this could impact growth. “The state of the banking sector in India, therefore, needs urgent attention," it said.
The survey said banks should also introduce employee stock ownership (ESOP) scheme and link it to the performance of employees. “Ownership by motivated, capable employees across all levels in the organization could give such employees tangible financial rewards for value enhancement, align their incentives with what is beneficial to the public sector banks, and create a mindset of enterprise ownership for employees," it added.
Employees in state-owned banks are averse to risk-taking and innovation owing to their fixed compensation and the risk of coming under the scanner of vigilance agencies. A long-term solution to this problem is enabling employees to own stakes in the PSBs, the survey said.
It proposed setting up of a PSB Network (PSBN), along the lines of the goods and services tax network (GSTN), which can enable use of big data, artificial intelligence and machine learning, to help monitor lending decisions, especially to large corporates.
Using PSBN, banks will be able to take more informed decisions on credit underwriting, which in turn, will reduce the burden of bad loans, besides preventing fraud.
“As the government is the owner of all PSBs, the government has the right to use the data that PSBs generate during their business. Therefore, the government as the promoter must set up this entity that will aggregate data from all PSBs to enable decision making using big data techniques," the survey said, adding that such investments are crucial to ensure better screening and monitoring of borrowers, especially the large ones.
It also unveiled the Health Score, an early-warning system, which will advice on imminent rollover risks in the shadow banking sector.