EASE Reforms Index: Streamlining and Transforming Public Sector Banking in India

The Indian government’s commitment to refining and expanding the index is a testament to its importance in the ongoing transformation of the Indian banking landscape.

The Indian banking sector is undergoing a significant transformation, driven by the government’s ambitious reforms agenda. A key initiative in this regard is the EASE Reforms Index. The framework was launched in 2018 to assess and improve the performance of Public Sector Banks (PSBs). The EASE Reforms Index refers to the “Enhanced Access & Service Excellence” Reforms for Public Sector Banks (PSBs) in India. It’s part of a comprehensive strategy aimed at reforming PSBs, focusing on customer responsiveness, responsible banking, credit off-take, UdyamiMitra for MSMEs, deepening financial inclusion, and digitalization.

Challenges and Transformations in the Indian Banking Sector: Tackling NPAs

The Indian banking industry, particularly in the public sector, has faced significant challenges due to Non-Performing Assets (NPAs). These NPAs have not only impacted the financial health of banks but also affected the larger economic environment. Efforts to address this issue have been a key focus of the Enhanced Access & Service Excellence (EASE) reforms.

Through strategic measures aimed at improving governance, risk management, and recovery mechanisms, the sector is making concerted efforts to reduce NPAs and strengthen the overall banking system. This transformation is crucial for ensuring the sustainability and growth of the Indian banking industry.

The 4R’s Strategy for NPA Management and Sector Reform

In response to the persistent challenges of Non-Performing Assets (NPAs) in the Indian banking sector, the government introduced a strategic framework known as the 4R’s strategy. This approach is pivotal in transforming and stabilizing public sector banks (PSBs), addressing core issues affecting their performance and sustainability.

The 4R’s strategy is a holistic approach adopted by the Indian government to address the challenges faced by public sector banks (PSBs), particularly regarding Non-Performing Assets (NPAs). This strategy includes:

1. Recognition: Accurately identifying and reporting the extent of NPAs in the banking system.
2. Resolution: Implementing measures to resolve the issue of stressed assets.
3. Recapitalization: Infusing capital into banks to strengthen their balance sheets and ensure adequate capitalization.
4. Reforms: Introducing reforms to improve governance, risk management, and operational efficiencies in PSBs.

Evolving Landscape of Indian Banking: The Journey from Traditional Practices to EASE Reforms

The Indian banking sector has a rich history and has evolved significantly over time. Historically, the sector has been dominated by public sector banks (PSBs), which have played a pivotal role in the country’s economic development. These banks have been instrumental in implementing government policies, especially in rural and semi-urban areas.

However, they have faced challenges, particularly with Non-Performing Assets (NPAs), which have impacted their financial stability and operational efficiency. In response, the Indian government introduced the EASE (Enhanced Access & Service Excellence) Reforms Index, focusing on customer service, credit off-take, and digitalization to enhance governance, risk management, and efficiency in public sector banks.

This initiative marks a significant step in the ongoing evolution of the Indian banking industry, aiming to strengthen these institutions and improve their contribution to the national economy.

What is the EASE Reforms Index?

The EASE Reforms Index, an acronym for Enhanced Access and Service Excellence, is a comprehensive framework that evaluates PSBs on over 120 objective metrics across six dimensions. The index provides a framework to measure and track the performance of PSBs against these objectives, encouraging continuous improvement and adoption of best practices across the banking sector. This initiative is a collaborative effort involving the government and PSBs, designed to promote clean and smart banking.

• Financial Inclusion & Outreach
• Market Penetration & Credit Disbursement
• Operational Efficiency & Profitability
• Risk Management & Capital Adequacy
• Customer service & Technology
• Governance & HR.

Aims

Each PSB is scored on these metrics, and the overall score provides a comparative assessment of their performance. The index aims to:

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• Promote healthy competition among PSBs
• Encourage them to adopt best practices
• Improve their overall efficiency and effectiveness
• Enhance customer service
• Make PSBs more competitive in the Indian banking landscape.

Evolution of Term ‘EASE Reforms Index’

EASE Reforms Index was launched in January 2018 jointly by the government and PSBs. It was commissioned through Indian Banks’ Association and authored by Boston Consulting Group. Indian Banks’ Association is an association of Indian banks and financial institutions based in Mumbai.

Meaning of the term

EASE stands for Enhanced Access and Service Excellence. The EASE Reforms Index evaluates each PSB’s performance using more than 120 objective indicators and provides a transparent grading approach that enables banks to identify their strengths and areas for improvement.

Objective

The main objective of EASE Reforms Index is to institutionalize CLEAN and SMART banking. The goal is to continue driving change by encouraging healthy competition among PSBs.

Purpose

EASE Reforms Index is aimed at reinforcing public sector banks and ranking them on metrics like responsible banking, financial inclusion, credit off-take, and digitization. The EASE Reforms Index gauges the performance of each PSB on 120 plus objective metrics across six themes.

Why is it important?

EASE Reforms Index is important because it evaluates each PSB’s performance using more than 120 objective indicators and provides a transparent grading approach that enables banks to identify their strengths and areas for improvement. The goal is to continue driving change by encouraging healthy competition among PSBs.

How it works?

EASE Reforms Index evaluates each PSB’s performance using more than 120 objective indicators and provides a transparent grading approach that enables banks to identify their strengths as well as areas for improvement. The goal is to continue driving change by encouraging healthy competition among PSBs.

Meanings for investors

EASE Reforms Index is important for investors because it reinforces public sector banks and ranks them on metrics like responsible banking, financial inclusion, credit off-take, and digitization. The EASE Reforms Index gauges the performance of each PSB on 120 plus objective metrics across six themes.

Example

Union Bank of India Secures 2nd Rank in EASE Reforms

New Delhi – January 11th, 2024: The Union Bank of India has achieved a significant milestone by securing the 2nd rank in the EASE Reforms Index for Q2 FY 2023-24. This index, governed by the Indian Banks’ Association (IBA), evaluates the adoption of prescribed reforms by Public Sector Banks (PSBs).

Union Bank’s remarkable performance is largely attributed to its initiatives in enhancing digital and digitally assisted services for customers. The bank has shown a strong commitment to delivering superior customer service through digital innovation. Furthermore, it has effectively utilized analytics to offer personalized services, alongside considerable improvements in HR operations and personnel development.

The EASE 6.0 framework, under which PSBs are evaluated, comprises four key themes. Union Bank of India has excelled notably, being recognized as the Best Bank under the theme “Developing People and Enhancing HR Operations.” Additionally, it secured the 2nd runner-up position in the category “Delivering Excellence in Customer Service with Digital Enablement.”

EASE, or Enhanced Access & Service Excellence, is an initiative of the Department of Financial Services (DFS), Government of India. It represents a crucial aspect of the PSB Reforms Agenda. The sixth iteration of this initiative emphasizes “Customer-friendly banking enabled by modern capabilities,” underlining the evolving landscape of banking services in India.

Impact of the EASE Reforms Index

Since its launch, the EASE Reforms Index has had a significant impact on the performance of PSBs. The overall score of PSBs has improved steadily over the years, indicating a positive trend towards better performance. Some of the key achievements of the index include:

• Increased credit disbursement to priority sectors
• Improved operational efficiency
• Reduced NPAs
• Enhanced customer service
• Greater adoption of technology.

The index has also helped to identify areas where PSBs need to improve. For example, the 2023 EASE 5.0 Index highlighted the need for PSBs to focus on:

• Digitalization
• Data analytics
• Modern technology
• Employee development
• Governance.

The Future of the EASE Reforms Index

The EASE Reforms Index is a work in progress, and the government is constantly refining it to ensure that it remains relevant and effective. The latest iteration, EASE 5.0, focuses on “Enhanced Digital Experience, Data-Driven, Integrated and Inclusive Banking”.

The government is also working to expand the scope of the index to include private-sector banks. This will create a more level playing field and further promote competition in the Indian banking sector.

The EASE Reforms Index is a significant initiative that is transforming the Indian banking sector. By promoting competition, efficiency, and customer service, the index is helping PSBs to become more competitive and better serve the needs of the Indian economy.

What are the six themes of the EASE Reforms Index?

The EASE Reforms Index evaluates each PSB’s performance using more than 120 objective indicators across six themes:

1. Responsible Banking
2. Customer Responsiveness
3. Credit Off-take
4. PSBs as UdyamiMitra (SIDBI portal for credit management of MSMEs)
5. Financial Inclusion & Digitalisation
6. Governance and HR

How is EASE Reforms Index different from other banking indices?

EASE Reforms Index is different from other banking indices because it evaluates each PSB’s performance using more than 120 objective indicators across six themes. The six themes are responsible banking, customer responsiveness, credit off-take, PSBs as UdyamiMitra (SIDBI portal for credit management of MSMEs), financial inclusion & digitalisation, and governance and HR.

The EASE Reforms Index provides a transparent grading approach that enables banks to identify their strengths and areas for improvement. The goal is to continue driving change by encouraging healthy competition among PSBs 2.

Can you give an example of how a bank’s performance is evaluated using the EASE Reforms Index?

The EASE Reforms Index evaluates each PSB’s performance using more than 120 objective indicators across six themes. The six themes are responsible banking, customer responsiveness, credit off-take, PSBs as UdyamiMitra (SIDBI portal for credit management of MSMEs), financial inclusion & digitalisation, and governance and HR.

For instance, the EASE Reforms Index evaluates the banks’ performance in responsible banking by assessing their compliance with the Banking Codes and Standards Board of India (BCSBI) codes, the number of complaints received, and the time taken to resolve them.

Similarly, the EASE Reforms Index evaluates the banks’ performance in customer responsiveness by assessing their turnaround time for loan applications, the number of call centres, and the inclusion of regional languages in customer service.

What are the benefits of investing in public sector banks?

Public sector banks offer several advantages, including:

• Financial Inclusion: Public sector banks expand banking services to remote areas, promoting financial inclusion for underserved populations. For example, State Bank of India has over 22,000 branches, enabling wider access to banking facilities.
• Government Backing: Public sector banks are backed by the government, which provides a sense of security to depositors. In case of financial stress, the government is likely to bail out these banks, reducing the risk of default.
• High-Interest Rates: Public sector banks offer competitive interest rates on deposits, making them an attractive option for investors.
• Low-Interest Charges: Public sector banks offer low-interest charges on loans, making them an affordable option for borrowers.
• Job Security: Employees of public sector banks enjoy job security and other benefits such as pensions after retirement.
• Service to a Large Customer Base: Public sector banks offer their services to a large customer base, including individuals, businesses, and government entities.
• Service to Rural Areas: Public sector banks have established branch networks in rural and remote areas, making banking services more accessible to the general population.

How do I invest in public sector banks?

You can invest in public sector banks through the following ways:

• Direct investment: You can buy shares of public sector banks through a stockbroker. You need to have a demat account to hold the shares.
• Mutual funds: You can invest in mutual funds that have exposure to public sector banks. Banking and PSU Funds are investment options available in Mutual Funds. These funds invest in the stocks of public sector units (PSUs) and banks. The return on these investments can be higher than that of other non-equity mutual funds. In addition, the risk is lower since these funds invest in relatively stable companies 1.
• ETFs: You can invest in Exchange Traded Funds (ETFs) that track the performance of public sector banks. For instance, Nippon India ETF PSU Bank BeEs contains the biggest public sector banks in India.

(India CSR)