Handling the heights

Growth, though, hasn’t been a problem. At Independence, banking assets stood at Rs 1,151 crore; as of March 2005, at Rs 23,48,186 crore — a growth rate of 14 per cent per annum over 58 years. While that’s an enviable pace, it has come on a small base and has been volatile. Take any 15-year period, and the fastest growth has come between 1963 and 1976 — 18-20 per cent per annum. Between the glamorous post-liberalisation period of 1991 and 2005, the rise was 15.7 per cent per annum. Scale takes time to build, and takes far more out of banks seeking growth.

The one difference that liberalisation has brought is consumer focus, which has helped non-PSBs increase their market share. Between 1990 and 2005, SBI’s assets have increased seven-fold, but its market share has dropped from 25 per cent to below 20 per cent. Now, the number two player, ICICI Bank, is going to the villages (See pages 4 and 5). Can PSBs compete?

If size and scale are the determinants of competitive strength, PSBs should have grabbed the consumer banking space in the late 1990s and should have been at the forefront of rural banking today. But leadership has come from private banks. Today, when PSBs want subsidies to go rural, private banks are creating business models around the area. In terms of dynamism and innovation, private banks have taken the lead.

But along with that lead have come practices that often walk on the edge of regulation. Our relationship with our bank today is one of knowing the bank manager in a PSB and the amount of money in a private bank. If knowing a PSB manager helps speed up routine transactions, the amount of money helps get better, premium services in a private bank. PSBs, I find, are climbing the services ladder. I also find private banks, with their mis-selling of financial products, harsh and illegal loan recovery methods, and generally a no-holds-barred growth passion, a little scary to deal with.

If the keyword is trust, PSBs are way ahead. If the keyword is growth, it’s private banks. Once manned by humans, banks, if Capgemini’s 2006 Retail Banking Report is to be believed, “are losing the human touch”. Technology, which was supposed to make things easier for us, has morphed into a new monster that bites us, bleeds us, irritates us and creates delicious profits for investors.

And when we try to fight back, we find ourselves talking to recorded voices, emails being answered by trainees who couldn’t care less for regulatory dictums. So, being inflicted on financially- and legally-illiterate consumers are fixed rate loans that are not really fixed, floating rate loans that don’t really float. Stealth banking, wrong charges, new charges, you name it and the banks have it.

On its Mint Road office, regulator RBI is trying hard. Last week, governor Y.V. Reddy floated the idea of a depositor protection fund. Earlier in the month, RBI released a scheme for “ensuring reasonableness of bank charges”. There is also the code of conduct and minimum standards that consumers can expect. Still, there are a litany of complaints. A high-level RBI source tells me banks don’t listen. The CEO of one of India’s top banks says when there are millions of customers, there will be hundreds of complaints. Yeah, right.

The years ahead will see action in three areas. One, consolidation smaller, weaker banks will be targets of larger, stronger ones. Two, new areas, particularly the rural and the SME segments. Three, more profits a fast-growing economy needs a fast-growing banking sector to serve it. The next 15 years of banking growth will depend on how the sector moves today. How soon it grabs its place in the global sphere remains to be seen.

gautam.chikermane@expressindia.com