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Demographic Dividend: What Banks Can Do?

24/04/2021 at 5:55 AM

Indian banks, while responding to the challenges of the demographic dividend, which means a lower dependency ratio, larger participation in the workforce, higher-income accrual to the employed, and ultimately higher economic growth, have to shape their policies.

Dr Manas R Das

Demographic dividend simply means lower dependency ratio, larger participation in the workforce, especially by the younger generation,higher-income accrual to the employed, and therefore more savings, investments and national income, and ultimately higher economic growth. It has been long recognized that our country is basking in the sunshine of demographic dividend.

Various experts have observed that many Asian countries such as China and those in the southeast have been able to realize rich dividends out of this positive demographic transition in their respective countries.

Indian banks, while responding to the challenges of the demographic dividend, have to shape their policies keeping in view some of the attributes of today’s young workers.

Retail Banking

One of the main reasons for banks venturing into and expanding their retail business is the demographic dividend. In view of the fact that a young worker’s ‘risk appetite’ is more and his material acquisitiveness is at an elevated level, he wants to possess a house, car, and consumer durables, credit or debit cards, etc., as soon as he gets employment. Therefore, banks have to continually come out with newer and better schemes to meet these demands. However, there is a distinct dichotomy in the way private and public sector banks have approached the issue.

Through his demand for these commodities, today’s young worker is invigorating the overall economy. Low interest rates have supported this retail revolution.

Education Loan

Education loan is an important component of banks’ retail portfolios. Education loan is of paramount importance for supporting the demographic dividend. However, a higher incidence of NPAs in education loan has been a hindrance although banks are keen to finance deserving cases.

Education loan limits that remain static for several years should be tailored to periodic increases in the cost of higher education. Hike in fees of IIMs and IITs is a case in point, let alone overseas education.

Banks should also enlarge their education loan portfolio by providing facilities for those who want to acquire newer skills while being in jobs.

 Catch Them Young

In order to reap rich dividends out of the younger workforce banks should catch the younger workers right from their school/college days. ‘Youngster banking is an area banks should look into. Many banks have gone ahead and opened ATMs on campuses. Banks should have arrangements with colleges/schools to collect their fees, etc. KYC formalities should be simple for students.


For the young workforce, banks should aggressively popularize one of their products, i.e., Recurring Deposit Scheme.

As the young workforce has a higher-risk appetite’, it is keen to venture into the capital market. PSBs should provide platforms for this.

Salary-tie ups with institutions open up several profitable opportunities for banks.

Customer Service

Customer service carries significant meaning for the young workforce. I am witness to an incident when a young man demanded a letter of apology from a bank branch for the latter not being able to issue him the passbook in time. The purpose, as he explained to the bank clerk, was that if he could show the letter to his boss, the latter would allow him to visit the bank once again to collect the passbook. Thus, time is life for them as well as their employers.

Advisory Services

Financial Planning and Advisory Services is yet another area banks should accord serious attention to with a view to guiding the risk-taking young workforce through the personal finance jungle. Some private banks are already into this activity, but public sector banks are yet to take the plunge.

Recruitment and Retention Policy of Banks

The demographic dividend has implications for banks from the viewpoint of their employee recruitment and retention. Banks cannot go on recruiting generalists and appoint them in innumerable and varied positions throughout their careers. ‘Jack-of-all-trades’ approach has precipitated in the bureaucratization of banks and inefficiency. Banks, instead, have to increasingly recruit specialists in Finance, Economics, Management, Computer and Information Science, etc., to meet the demands of the present as also future. In addition, they may allow on-the-job specialization for the generalists.

Banks’ HRD policies should focus on incessant up-skilling of their workforce.

Banks should adopt remuneration policies that are highly competitive, and career prospects for the younger employees should be made highly lucrative. Otherwise, there will be an exodus. The young workforce loves job-hopping.

Concluding Remarks

A country cannot grow unless it cares for its youth – more specifically its young workforce. Banks are no exception to this. The Sooner the banks realize this, the better it would be for them and the whole country which is proud of its demographic dividend. 

About the Author:

Dr. Manas R. Das is a former senior economist of State Bank of India. He has over 30 years of experience as an economist in two large commercial banks. Academically, he is a gold medalist in Bachelor of Arts with Economics Honours from Utkal University, followed by Master’s in Economics from Delhi School of Economics and Doctorate in Economics from Gokhale Institute of Politics and Economics. He is also a Certified Associate of the Indian Institute of Bankers. He has won several awards, besides being a prolific writer.

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