Government has given license to many business entities for opening newly branded Payment Bank . Our Finance Minister and RBI Governor say that it is not going to harm future of existing public sector banks. I will not say it is their lack of foresightedness or lack of vision about what is going to happen in future, but I will definitely say that fate of public banks is going to move from bad to worse. And ultimately it will be public money which will be spent in saving existing PS banks from disaster.
In 1991 government decided to give license for opening of private banks in the name of privatisation ,liberalisation and globalisation. At that time too , the then government had assured warring trade union leaders that giving license for private banks will create competition and not affect the future of existing Public sector banks. This time too , Government and RBI are trying to fool or purchase Leaders of Trade Unions .
But unfortunately ,during last 25 years and more , Public banks have faced severe erosion in their business, profitability and capital. It is true that they have spent billion of rupees in frequent renovation of bank premises or in rebranding of bank, but they failed to compete with private banks from any point of view. Public banks have spent crores of rupees in changing costume and appearance of their branches, but totally failed to change minds and mentality of bank employees and their political masters.
Office fixture and furnitures of public banks changed but the mind-set of workers , government and regulating agencies did not change. This is why though banks have expanded their network of branches rapidly and reached almost to all villages but there is no improvement visible in quality of operation, quality of lending and quality of service or housekeeping of public sector banks. Not only market share of business of public banks has faced sharp erosion , but Quality of assets has also been deteriorating quarter after quarter and government is forced to provide support of capital to weakening banks from time to time. PSBs had a market share of around 80 per cent and private banks 20 per cent as on March 2013. Within PSBs, SBI has the largest market share of 19.1 per cent, and the balance 20 NBs account for 60.6 per cent.
In 1991 too , Government gave absolute freedom to public banks in deciding interest rate structure, in process of recruitment and in process of promotion of bank employees . RBI deregulated power of expansion of branches and empowered all banks to decide their expansion policy keeping minimum norms in mind only. But the bitter truth is that private banks like ICICI , HDFC, Axis Bank, Yes Bank have snatched major chunk of quality business from public banks . Position of public bank officials have become pathetic and these officials are moving from pillar to post to garner good business but always fail.
Not only this , majority of good and quality customers are inclined to bank with private banks only despite the fact that their charges are quite higher than public banks. Even large amount of government fund is parked in private banks. Large corporate houses disburse their salary of their employees through only private bank. Public servants, politicians and even employees of public sector banks in large numbers have their main account with private banks.
Position of public banks is so much pathetic that they are constrained to extend concession in interest rate, concession in processing and other charges and various other concessions to attract customers from private banks. Even by these ill-motivated tactics and even by sacrificing liberally the interest of public money , they face much difficulty in attracting and sustaining quality good customers. Customers who are somewhat of inferior quality and whose integrity is doubtful approach public banks offering so many gifts and temptation of top officials of public banks.
Not only this, when account of such unscrupulous borrowers goes bad and become substandard and doubtful for recovery, they think it wise to rephrase their account, restructure the account or sanction additional loan to keep them standard and to save them from Ministers and their top bosses. Bank management of almost all public banks use to fix target not only deposits and advances but also for Bad assets i.e. for Non Performing Assets. Window dressing is used not only for achieving targets for deposits and advances but also for NPA. Banks use to show false recovery or use other wrong tools as mentioned above to hide bad loans and continue to treat them as Standard Advances so that their target for cash recovery as also for terminal NPA is achieved . Not to speak of loss caused to bank by bad assets, even loss caused due to ever rising incidents of fraud is enormous.
Despite all window dressing methods and unethical lending and unethical write offs, banks are unable to give even half of incremental growth every year which a private bank use to give. Now RBI has given license for payment banks. These payment banks will cut considerable amount of CASA (Savings and Current deposits ) of public sector banks. New generation banks have already taken large portion of CASA. Average CASA of Private banks is more than 40 percent whereas that of public banks is less than 30 percent of total deposits. Now payment bank will cut their share of slice from existing public bank only. There is no doubt that these payment banks will adversely affect the profitability of public banks.
High value loans of good quality and high value bulk depositors have already been taken away by new generation private banks and now small and mid level depositors will also switch to these Payment banks in quest of getting excellent service of deposits and quicker remittances to their target. .
Overall outcome is that public banks are already facing depletion in their capacity to bear with rising burden of rising bad debts .NET interest margin is getting thinner and it will further get thinner when share of CASA will fall due to Payment banks newly created by Government. Cost of deposits of public banks will further go up and yield on advances will fall sharply first due to politically motivated bad lending and then due to constraint in recovery from bad borrowers .
Quality of manpower and quality of management will further add fuel to fire. And lastly government itself take all possible steps to spoil future of public banks for their political gain. It is they who impose various schemes on public banks to attract voters and it is they who get many unproductive work get done by public banks only. As such already public banks are already dead bank or running on ventilators, now Payment bank will prove to be last nail in their coffin.
Last but not the least, if it is assumed that public sector banks will not be affected by newly launched payment banks, then it is almost certain that Payment Bank of Narendra Modi Government will die its natural death within a few years as Mahila Bank of Chidambram almost failed . Private banks will not get much impact because they have already shaken hands with Payment banks directly or indirectly.
Government made experiment by Cooperative Banks ,Regional Rural Bank and now making experiment with Payment Bank. RRB and Cooperative Bank almost died or merged with some or the other bigger bank. In future Payment bank will merge with some or the other Private bank of modern era
http://importantbankingnews2.blogspot.com/2015/08/future-of-public-bank-and-payment-bank.html
Health of Regional Rural Bank
https://books.google.com/books?id=TkL2CQAAQBAJ&pg=PT77&lpg=PT77&dq=health+of+Regional+Rural+Bank&source=bl&ots=4WqlGFJOgy&sig=upYtXpN5GIAHOrWAIfjqRZrYwso&hl=en&sa=X&ved=0CC0Q6AEwAmoVChMI5bbR0MPBxwIVRjo-Ch2_AA1R#v=onepage&q=health%20of%20Regional%20Rural%20Bank&f=false
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