BoB chief sees PSU, foreign banks on par within 3 years

Public sector banks in the country will come on par with private and foreign banks operating in India within three years, Bank of Baroda chairman and managing director P S Shenoy said in Ahmedabad on Monday.

Delivering a lecture on 'Banking transformation - its implications and impacts' at the Gujarat Chamber of Commerce and Industry (GCCI), Shenoy said at present, there are two areas which separate PSU banks from private banks and foreign banks "" level of technology and human resources.

"In the next three years, PSU banks will be on par with private and foreign banks," he said.

The Indian banking industry is the most profoundly affected by reforms and is at crossroads of its existence, he said. "There will be mergers of PSU banks in the near future. These mergers could be based on north-south and east-west synergies. The bigger PSU banks will play a major role in this emerging scenario," he said.

PSU banks still hold 80 to 85 per cent of India's banking business, while foreign banks hold around seven per cent of the business and private banks have a share of between eight and ten per cent, Shenoy said.

The foreign banks could now look for participation in PSU banks, he said.

Shenoy said the core banking solutions platform that PSU banks are working together for will ensure that a customer will not be a customer of a branch, but of a bank. "The aim is to ensure that a PSU bank offers loans, mutual funds, insurance, pension, merchant banking and investment banking services under one roof," Shenoy said.

He said in less than three years, three major functions of PSU banks "" cash, clearing and transfer "" will almost be eliminated. "There will be ATMs for cash withdrawal and deposits, the clearing part will be eliminated by the core banking solutions and the internet will facilitate transfer of funds. I believe, in the near future, bankers will not use the terms MT, DD, TT and the like," he said.

Shenoy said interest rates are likely to stabilise at this point or even show a soft bias.

"That will strain bank margins to some extent, but management is the name of the game here," he said. Shenoy said 90 per cent of all the business of banks will take place below the benchmark PLR.

About the state of urban co-operative banks of Gujarat, Shenoy said it is necessary for banks to handle their assets in the best possible way. "The managements should be more responsible and they are no different from commercial banks in functions," he said.