Due to acute manpower shortage and huge pressure of various works to be performed , public sector banks are not in a position to dispose off even retail loan application as quickly as their private counterparts can do.In addition to this management of public sector banks is not ideally fit for growth.Because top officials has no respect for officers who are honest, devoted and knowledgeable. Officers who really perform and who successfully satisfy the need of customers are not considered suitable for promotion and good posting by their seniors.
Most of senior officers like flattery from juniors and in many cases they prefer bribery and expect share in ill earned money.Top officials work for personal gain , for growth of personal status and for rise in numbers of flatterers who are always ready to extend red carpet welcome to them during their visit in branches, Top officials want that their juniors offer them gifts, costly gifts and flower bouquets on all occasions and give value to all their family members, friends , relatives and recommended customers even though such customers may prove harmful for the bank in future.
Recruitment, promotions and transfers all depend on the quantum of flattery and not the ability of the person to perform and neither on the potential of the person to work for growth for the organisation. On the contrary , in private banks, every person is assessed from the angle of profit and loss he or she cause to the bank , not to the boss .This is the root cause why private bank book considerable rise in profit and rise in business every quarter , less Non performing assets and MAXIMUM CUSTOMER SATISFACTION compared to public sector banks.
Global recession or inflation or high interest rates or economic slowdown affects PS banks and these are the key reasons attributed by top officials all the time they fail. Under same economic situation private banks book an annual growth of 30 to 40 percent in CASA, in overall business and in profit but PS banks book hardly 10 to 15 percent growth in their balance sheet. On the other hand volume and ratio of bad assets grows faster in PS banks than in private banks though both of them work under similar economic environment and same set of government rules and policies.
Culture of a bank plays pivotal role in creating an environment conducive for growth and true and pure growth of business and on the contrary culture of flattery helps in manipulation in figures at all level to convert bad picture to rosy picture.This is why even fraud is causing huge loss to PS banks than private banks.
It is worthwhile ot mention here that even the post of Executive Directors and Chairman and Managing Director are manned by those clever and corrupt officials in majority of cases who are close to powerful ministers and whose names are recommended by some powerful dignitaries of the country and who can spend huge amount of money to get the posting of ED and CMD. When top officials come from bad route , they inculcate similar culture down the line in their respective banks.
Culture of a bank plays pivotal role in creating an environment conducive for growth and true and pure growth of business and on the contrary culture of flattery helps in manipulation in figures at all level to convert bad picture to rosy picture.This is why even fraud is causing huge loss to PS banks than private banks.
It is worthwhile ot mention here that even the post of Executive Directors and Chairman and Managing Director are manned by those clever and corrupt officials in majority of cases who are close to powerful ministers and whose names are recommended by some powerful dignitaries of the country and who can spend huge amount of money to get the posting of ED and CMD. When top officials come from bad route , they inculcate similar culture down the line in their respective banks.
Why PSBs may not be well-equipped to handle increased retail lending-ET 03.11.2013
A loan delayed is a loan denied," says a Mumbai-based dealer for Hero MotoCorp, implying how crucial speedy approval and disbursement of a vehicle loan is. "Most public sector banks [PSBs] take more than a week to clear the loan. A private bank approves a loan in hours and disburses the money on the same day," he says, requesting anonymity. While the dealer has been working with private sector banks for 15 years now, he tied up with PSBs only three years ago. The dealer's experience is symptomatic of the way PSBs function in retail lending.
Recently, a slew of PSBs like State Bank of Indi Corporation Bank,Indian Overseas Ban, Vijaya Bank and Dena Bank cut rates on either consumer durable loans or vehicle loans or on both by up to 200 basis points (or 2%) in response to calls from the finance ministry to make these loans cheaper.
These may be measures to give a shot in the arm to these sectors: consumer durables output fell 0.8% in August compared to a 1% rise a year earlier; car sales were down 5% in the first six months of the current fiscal, and two-wheeler sales rose a marginal 3%. Finance minister P Chidambaram's nudging clearly had the Diwali season in sight, but these loans are not quite up the alley of PSBs.
Advantage Private Banks
Retail loans, which also include education, personal loans and credit cards outstanding, account for 18% of the Indian banking system's total credit, as per the latest RBI data; home loans make up more than half of retail lending, with vehicle loans being the single second-largest category (see Total Bank Credit...).
Traditionally, PSBs have been geared toward lending to corporates, agriculture and other priority sectors, which include housing and SMEs. Private sector banks like HDFC Bank, ICICI Bankand Kotak Mahindra Bank have earned their spurs by giving out retail loans.
Though PSBs have stepped up their consumer lending focus in the past few years, a cursory look at the numbers of the biggest PSBs and private banks reveals the former still has a long way to go. Retail accounts for less than 13% of the top five PSBs' loan books, while it accounts for more than a third of the five biggest private banks (see Where Private Banks...). Even within retail, private banks have a higher proportion of non-housing loans than their state-owned counterparts.
Recently, a slew of PSBs like State Bank of Indi Corporation Bank,Indian Overseas Ban, Vijaya Bank and Dena Bank cut rates on either consumer durable loans or vehicle loans or on both by up to 200 basis points (or 2%) in response to calls from the finance ministry to make these loans cheaper.
These may be measures to give a shot in the arm to these sectors: consumer durables output fell 0.8% in August compared to a 1% rise a year earlier; car sales were down 5% in the first six months of the current fiscal, and two-wheeler sales rose a marginal 3%. Finance minister P Chidambaram's nudging clearly had the Diwali season in sight, but these loans are not quite up the alley of PSBs.
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Advantage Private Banks
Retail loans, which also include education, personal loans and credit cards outstanding, account for 18% of the Indian banking system's total credit, as per the latest RBI data; home loans make up more than half of retail lending, with vehicle loans being the single second-largest category (see Total Bank Credit...).
Traditionally, PSBs have been geared toward lending to corporates, agriculture and other priority sectors, which include housing and SMEs. Private sector banks like HDFC Bank, ICICI Bankand Kotak Mahindra Bank have earned their spurs by giving out retail loans.
Though PSBs have stepped up their consumer lending focus in the past few years, a cursory look at the numbers of the biggest PSBs and private banks reveals the former still has a long way to go. Retail accounts for less than 13% of the top five PSBs' loan books, while it accounts for more than a third of the five biggest private banks (see Where Private Banks...). Even within retail, private banks have a higher proportion of non-housing loans than their state-owned counterparts.
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Why Retail Makes Sense
"They [PSBs] have been funding the investment of corporates while private banks have been funding consumption. For PSBs to understand consumption, they need human capital, effective monitoring of EMIs and an increased number of products," says Rajiv Mehta, an analyst with IIFL, a financial services firm. He adds that retail is less risky and more profitable than wholesale lending and that its growth is more predictable. "Given the smaller ticket size of loans, you need to cover more people to grow. You should add branches constantly," notes Mehta.
That is exactly what IDBI Bank intends to do. The bank plans to double its branch network to 2,000 by March 2015, and increase the share of consumer loans in its book. MS Raghavan, CMD, IDBI Bank, says since reach is essential to retail loans, PSBs are better placed than private banks. While there are 73,600 PSB branches, private banks have just over a fifth of that.
But a wide branch network is not everything. "The manager of a branch would be happier giving out one major corporate loan than several retail loans. That attitude should change. Since large corporate loans are risky, they should be priced properly, but we can't because of the competition. We have realized that to retain our margins we have to go retail," says Raghavan. HSU Kamath, CMD, Vijaya Bank, concurs: "In corporate loans, companies have substantial bargaining power, but in retail the pricing power is in the hands of the bank."
No Time to Rest
Vaibhav Agarwal, an analyst with Angel Broking, says he found on his recent visit to over 15 PSB branches in suburban Mumbai that there was no desire among officers to push consumer loans. "Sometimes they had no clue about schemes announced by their headquarters. Customers who get rejected by private banks for [non-home] retail loans go to PSBs, whose credit appraisal mechanism is not good enough," he adds.
There are signs of change among PSBs, however. The Hero MotoCorp dealer mentioned at the beginning says SBI is working on approving loans in a day and has created a separate vertical. Some banks are also experimenting with bundling two-wheeler or car loans with home loans, but the jury is still out on that.
http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/why-psbs-may-not-be-well-equipped-to-handle-increased-retail-lending/articleshow/25140038.cms?curpg=2
"They [PSBs] have been funding the investment of corporates while private banks have been funding consumption. For PSBs to understand consumption, they need human capital, effective monitoring of EMIs and an increased number of products," says Rajiv Mehta, an analyst with IIFL, a financial services firm. He adds that retail is less risky and more profitable than wholesale lending and that its growth is more predictable. "Given the smaller ticket size of loans, you need to cover more people to grow. You should add branches constantly," notes Mehta.
That is exactly what IDBI Bank intends to do. The bank plans to double its branch network to 2,000 by March 2015, and increase the share of consumer loans in its book. MS Raghavan, CMD, IDBI Bank, says since reach is essential to retail loans, PSBs are better placed than private banks. While there are 73,600 PSB branches, private banks have just over a fifth of that.
But a wide branch network is not everything. "The manager of a branch would be happier giving out one major corporate loan than several retail loans. That attitude should change. Since large corporate loans are risky, they should be priced properly, but we can't because of the competition. We have realized that to retain our margins we have to go retail," says Raghavan. HSU Kamath, CMD, Vijaya Bank, concurs: "In corporate loans, companies have substantial bargaining power, but in retail the pricing power is in the hands of the bank."
No Time to Rest
Vaibhav Agarwal, an analyst with Angel Broking, says he found on his recent visit to over 15 PSB branches in suburban Mumbai that there was no desire among officers to push consumer loans. "Sometimes they had no clue about schemes announced by their headquarters. Customers who get rejected by private banks for [non-home] retail loans go to PSBs, whose credit appraisal mechanism is not good enough," he adds.
There are signs of change among PSBs, however. The Hero MotoCorp dealer mentioned at the beginning says SBI is working on approving loans in a day and has created a separate vertical. Some banks are also experimenting with bundling two-wheeler or car loans with home loans, but the jury is still out on that.
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