Depositors still bank on state-run lenders -Business Line 03.03.2014-(My Comments are given below)
- RADHIKA MERWIN
- BL RESEARCH BUREAU
Public sector banks hold 78% of all deposits, lend 76% of loans
March 2, 2014:
With mounting bad loans and top-level exits, public sector banks are in the news for all the wrong reasons. But they still remain the favourites with Indian depositors.
It has been two decades since new private sector banks made their debut in the country, but public sector banks hold 78 per cent of all deposits and lend 76 per cent of all the loans. In the last two years, about ₹14 lakh crore of incremental deposits flowed into public sector banks, while private banks could collect only a third of this.
New private banks which started out in the 1990s initially captured a 10 per cent share of savings and term deposits. But they haven’t made much headway in the last five years. Around 80 per cent of the incremental deposits of ₹41 lakh crore, flowed into state-owned banks in this period. Why hasn’t the entry of new private players dented public sector banks? One reason could be their nationwide reach. Most new banks set up in the last decade or so are yet to establish a national presence. Axis Bank, the third largest private lender, has 2,321 branches. This is still lower than many small state-owned banks; Allahabad Bank and UCO Bank, for instance, have around 2,700 branches.
While private players may offer swanky offices and anywhere-banking, what clients seem to value is a branch in their neighbourhood. Public banks account for 82 per cent of the total number of bank branches in the country. “Branch banking still remains a preferred mode of banking for customers in India. Public sector banks have a vast branch network and, hence, their share of business in the banking sector is still over 70 per cent,” says Ananda Bhoumik, Senior Director and Head, Financial Institutions, India Ratings & Research. Regulations require private banks to set up one-fourth of their new branches in un-banked areas. Private lenders, keen to protect their profitability, have gone slow on opening new branches.
My Comments __ Result
of Blind Trust Of People on Public sector banks is that Government has
exploited it to maximum extent and similarly bank top officials have.
Consequence is that people's money is now facing loss after loss, sometimes in
bad assets and sometimes in fraud
People of India still consider
public sector banks as most safe banks compared to private banks. Further,
State bank of India is treated as the safest among other government banks. People
have greater trust on government banks only because they have many times burnt
their fingers in private banks, chit funds, and many other Non Banking
Financial companies.
Even majority of government
departments and public sector undertakings prefer public sector banks as safe
and only banks where government fund can be parked. Government departments are
perhaps doing business with PSBs more often than not
under instruction of their bosses to deal
with preferably with PSBs. It is worthwhile to mention here that
State bank or India in particular and many PSBs in general will suffer loss or
face sharp erosion in their profits if
government departments withdraw lac of crore of rupees
from these banks. Government fund are largely kept in Current deposit and
saving deposit accounts where banks have to pay little interest and they get
scope to increase their low cost deposits (CASA) and earn more net interest
income on lending.
It is however
also true that during last few years promoters of various
private banks in nexus with some greedy politicians and corrupt officials who
earn money by selling government deposits, have succeeded in managing bulk
deposits from various departments of government of India and state
governments..It will not be an exaggeration or untrue to say that Protectors
and promoters of public sector banks (Ministers and Government officials )have
become destroyer of public sector banks who are habituated to earn bribe in
keeping government money too.
So far as people
of India are concerned, they have no option or little option of
keeping their hard earned money in banks other than public sector banks because
presence of private banks in rural area is almost dismal. Rather they have been
cheated by various chit funds and private Non-banking financial companies
(NBCC) who offer higher interest on deposits for shorter period and fly away
from the areas after grabbing crores of rupees. After burning fingers
frequently, these innocent and illiterate rural folks have imposed trust on
public sector banks only and try to avoid private banks as far
as possible. It is more due to compulsion and distrust in private banks.
In urban areas however,
majority of literate class, young class, and rich class have changed their
preference slowly from erstwhile public sector banks to private banks.
It is true that these people
also did not have trust on private banks but during the course of time
promoters of private banks like HDFC or Axis Banks or ICICI Bank have won the
heart and trust of young class and rich class people
by extending high standard of service and by extending personalized
service through their marketing force whereas during the same period
employees specially top officials of public sector banks have became victim of greed
and that of greedy politicians and have therefore slowly lost the trust of
youth and rich class people .
This is why majority of public
sector banks have lost market share in deposit of urban people and rich and
business class people. It is also true that though service
charge imposed by private banks on their clients on various services
is normally higher than their counterpart in public sector. Still new
generation youth and new generation business class give more value to quality
of service and are ready to pay higher service charges to get better and quick
customers services which is more guaranteed in private banks.
There is no doubt that public
sector bank branches in many places have also changed and improved their
quality of services during last few years in fear of losing business. And they
are in a position to compete new generation private banks. Still ambiance of
government banks in many places so much shabby and unpleasant that people’s
choice automatically shift to private banks. Even quality of services in
government banks in many branches due to acute staff shortage have been
deteriorating day by day and they are bound to lose market share in years to
come if these government banks do not provide enough staff support to their
branches.
As such it is totally true
that people of India still have 100 per cent faith and trust on public sector
banks only .It is remarkable to mention here that banks like ICICI in twenty
years of their existence have garner business equivalent to that
of SBI and more than many government banks which are more than hundred
year old.
It is painful to observe
that though people of India have imposed 78 % of their total trust on public
sector banks, they are not getting equivalent support from public sector banks
when they need loan. PSBs have extended 90% of their incremental lending to big
corporate houses and in big projects related to infrastructure or power or
mining or jewelers etc.
Small traders, farmers and small scale industrialists
have to run from pillar to post and from one bank to other and lastly to local
money lenders when they need money to grow their business. In brief , one can
pubic sector banks collect deposits from small depositors and distribute it to
rich class , may be to earn some bribe or some other favour.
Ninety percent to incremental lending from public sector banks goes to rich class top borrowers and hardly 10 percent goes to the hands of small traders and farmers.On the contrary major chunk of deposit comes from retail depositors. The most disheartening is that bankers usually plead that small loan given to small traders and farmers goes bad and hence they are inclined to go for lending to high corporate houses.
But the bitter truth is that ninety percent of bad debts in public sector banks are locked in rich class and big corporate houses and hardly 10 percent of NPA are related to finance made ( upto one lac only )to small traders, farmers and industrialists.Obviously though people of India still trust public sector banks but unfortunately these banks do not trust common men when they go for sanction of a loan.
PSBs vs private banks: Trust plays a big role
March 2, 2014:
Despite the existence of new private banks over the last two decades, PSU banks dominate in deposits and lending.
There’s the trust factor too. As economic conditions turn dodgy, despite public sector banks facing more asset quality issues than their rivals, people seem to prefer PSU names such as SBI, believing in the tacit Government guarantee.
This impression has been strengthened by the Government infusing capital year after year into PSU banks, to help them meet their capital adequacy norms.
In the last two years, SBI and its associates alone garnered about ₹3.8 lakh crore of incremental deposits; this equals the amount amassed by all 20 private sector banks put together.
“Capital too is critical for growth. In effect, the competition has been between PSU banks and a few private sector banks which have been able to bring in more capital,” says Ananda Bhoumik, Senior Director and Head, Financial Institutions, India Ratings & Research.It is also true that PSU bank employees are trying harder to woo depositors in recent years, with many banks raising the bar on employee productivity.
Catching up
According to India Ratings & Research, employee productivity has improved steadily for PSU banks. In 2007-08, the ratio of deposits per employee of a PSU bank was lower than that for private players. The trend started to change from 2009-10. By 2012-13 the deposits per employee stood at ₹7.2 crore for PSU banks against ₹5.2 crore for private banks.
According to India Ratings & Research, employee productivity has improved steadily for PSU banks. In 2007-08, the ratio of deposits per employee of a PSU bank was lower than that for private players. The trend started to change from 2009-10. By 2012-13 the deposits per employee stood at ₹7.2 crore for PSU banks against ₹5.2 crore for private banks.
“While private players have brought in several innovations around products, technology and customer servicing, several public sector players have been quick to follow to retain a dominant position,” says Monish Shah, Senior Director at Deloitte India.
United Bank faces auditing, corporate governance probes
NEW DELHI, MARCH 2:
The crisis-hit United Bank of India, which has run into losses amid suspiciously high bad loans, now faces fresh probes for possible lapses related to auditing and corporate governance norms.
Capital market regulator SEBI has received complaints about possible violations to its corporate governance norms at the bank, while it may also look into potential lapses with regard to its other regulations including those about related party transactions and insider trading, sources said.
Besides, the Institute of Chartered Accountants of India (ICAI) is believed to be looking at the role of the bank’s auditors, sources said, although there was no official word on these fresh probes.
UBI posted net loss of Rs 1,238 crore for the three months ended December 2013. Raising alarm, the lender’s gross non-performing assets (NPAs) touched Rs 8,546 crore during the same period.
The amount of NPAs surged from just Rs 2,964 crore at the end of March last year.
Besides, there are apprehensions about the books of UBI amid fears that rising bad loans might have not been properly reported for quite sometime.
In the wake of rising concerns over the bank’s financial health, its Chairman and Managing Director Archana Bhargava quit in February. She opted for voluntary retirement on health grounds and her request was accepted by the Finance Ministry.
Bhargava had taken charge as CMD in April 2013, and her term was to end in February 2015.
An administrative inquiry is under way to find out why the lender’s NPAs had been under-reported. Following a sharp surge in NPAs, the Reserve Bank of India has already ordered a forensic audit by a firm, which has submitted its report.
The government, which holds 88 per cent stake in the bank, had provided Rs 700 crore as capital in this financial year, ending March 31.
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