 "Should small PSU banks be allowed to die?")
Should smaller public sector banks be allowed to die is an interesting debate that has been triggered by an article in Moneycontrol by Latha Venkatesh, Executive Editor, CNBC TV18]. The point that Latha tries to make in the article is that new technologies and newer deep pocket players will increase the competition to such an extent that those banks who do not rise to the challenge will find it difficult to survive. Latha points out that the public sector undertaking (PSU) banks have not shown any fight in preparing itself to the eventuality.
Latha says “The midcap PSU banks look set to die. And this death won’t be a loss but a gain. Even the most ardent proponents of PSU banks have begun to admit that bank nationalisation is an unmitigated failure. The advent of payment and small banks may be an opportunity for the country to cleanse out at least some of these PSU banks that have become irreparable failures. PSU banks have been hotbeds of political patronage for a very long time. This is why I worry if the government will have the political will to kill them or let them die. One hopes these entities are not kept alive at the cost of the taxpayers’ money, as has been done with Air India.”
Replying to the article D. Thomas Franco Rajendra Dev, President, All India State Bank Officer’s Federation and Senior Vice President (All India), in a blog post picked holes in Venkatesh’s data and argued the importance of PSU banks to the country. He points out that PSU banks have not been living on taxpayer’s money but have given more to the government by way of dividends and tax than the periodic capital infusion they have received.
There is no denying the fact that whatever little penetration and financial inclusion the country has is on account of PSU banks. But for them, Tier III and lower cities would have only had post offices for financial transactions. While private sector banks have grown largely through retail financing, catering to high net worth individuals and charging high transaction fees, PSU banks have catered to lower section of the societies, funding social projects which were found not to be lucrative enough by private sector banks and worst PSU banks were expected to fund projects that were only politically viable.
But times are changing and banks need to modernise. Direct Banks are now a reality. A direct bank does not has any branch network but offers its services remotely via online banking and telephone banking and may also provide access via ATMs (often through interbank network alliances), mail and mobile.
Mobile and telephone connections in India are higher than bank accounts. There may be more dormant bank accounts than dormant mobiles, bringing out that point of usage of a bank account vis-à-vis a mobile.
Mobile operators have now been given payment banking licences. Banks both public and private will now have to compete with these physical asset light banks.
Private sector banks had already taken the initiative when computerisation was introduced and a large part of their success can be attributed to their adaptation to technology. PSU Banks on their part have been slow to change. Even computerisation in the initial days was opposed by banking unions.
But the writing is on the wall -- change or perish. Traditional banking system has changed. The present generation has visited a bank branch far lesser number of times than their parents.
A bigger change will come with the mode of transaction will change from hard cash to a mobile transfer. Government is promoting use of electronic as a medium of exchange. PayTm has already crossed the 100 million user mark with nearly 75 million transactions every day. This has been achieved in only four months of its launch.
Under such circumstances it is obvious that banks will have to keep in line with the changing technology. Banks that are slow to respond will see their clients move away to more convenient banking environment.
Rather than waiting for the promoter, or the government in case of PSU banks, to respond to change it’s the employees and their representatives who should be demanding change in their banks, lest they be left redundant. There is no point shooting the messenger of change.
Latha says “The midcap PSU banks look set to die. And this death won’t be a loss but a gain. Even the most ardent proponents of PSU banks have begun to admit that bank nationalisation is an unmitigated failure. The advent of payment and small banks may be an opportunity for the country to cleanse out at least some of these PSU banks that have become irreparable failures. PSU banks have been hotbeds of political patronage for a very long time. This is why I worry if the government will have the political will to kill them or let them die. One hopes these entities are not kept alive at the cost of the taxpayers’ money, as has been done with Air India.”
Replying to the article D. Thomas Franco Rajendra Dev, President, All India State Bank Officer’s Federation and Senior Vice President (All India), in a blog post picked holes in Venkatesh’s data and argued the importance of PSU banks to the country. He points out that PSU banks have not been living on taxpayer’s money but have given more to the government by way of dividends and tax than the periodic capital infusion they have received.
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Thomas also highlighted the fact that Jan Dhan Yojana was a success only because of PSU banks. Of the 188.6 million accounts opened under Jan Dhan only 7.2 million were opened by private sector banks.
There is no denying the fact that whatever little penetration and financial inclusion the country has is on account of PSU banks. But for them, Tier III and lower cities would have only had post offices for financial transactions. While private sector banks have grown largely through retail financing, catering to high net worth individuals and charging high transaction fees, PSU banks have catered to lower section of the societies, funding social projects which were found not to be lucrative enough by private sector banks and worst PSU banks were expected to fund projects that were only politically viable.
But times are changing and banks need to modernise. Direct Banks are now a reality. A direct bank does not has any branch network but offers its services remotely via online banking and telephone banking and may also provide access via ATMs (often through interbank network alliances), mail and mobile.
Mobile and telephone connections in India are higher than bank accounts. There may be more dormant bank accounts than dormant mobiles, bringing out that point of usage of a bank account vis-à-vis a mobile.
Mobile operators have now been given payment banking licences. Banks both public and private will now have to compete with these physical asset light banks.
Private sector banks had already taken the initiative when computerisation was introduced and a large part of their success can be attributed to their adaptation to technology. PSU Banks on their part have been slow to change. Even computerisation in the initial days was opposed by banking unions.
But the writing is on the wall -- change or perish. Traditional banking system has changed. The present generation has visited a bank branch far lesser number of times than their parents.
A bigger change will come with the mode of transaction will change from hard cash to a mobile transfer. Government is promoting use of electronic as a medium of exchange. PayTm has already crossed the 100 million user mark with nearly 75 million transactions every day. This has been achieved in only four months of its launch.
Under such circumstances it is obvious that banks will have to keep in line with the changing technology. Banks that are slow to respond will see their clients move away to more convenient banking environment.
Rather than waiting for the promoter, or the government in case of PSU banks, to respond to change it’s the employees and their representatives who should be demanding change in their banks, lest they be left redundant. There is no point shooting the messenger of change.