The Hindu Business Line : Banking set to turn tech-intensive, fee-dependent

THE year 2004 is expected to witness the fight-back of public sector banks. With technology a fervent mantra with most of them, state-run banks are increasingly matching the once-exclusive service offerings of private/foreign banks.

Meanwhile, the new private sector banks are becoming choosy in selecting their customers and the charges for the services offered.This discrimination of customers by the new banks is expected to bring cheer to the older and kinder PSU banks. Some private sector banks openly acknowledge while others privately admit that they are not interested in the `masses' but only in the `mass affluent'. Another major change the customer can expect in 2004 is the disappearance of chequebooks and paper-less fund transfers, preferably faster with the implementation of the RBI's new technology platform, RTGS. Banks mourning the loss of float money with RTGS in place are gearing up to offer a new suite of fund transfer products for corporate customers priced to compensate their loss of float.

The coming year is also expected to pave the roadmap to consolidation, although activity of mergers and acquisitions might pick up only in the years ahead. Private bodies, corporates, FII and FDI interest in the banking industry may surge as Parliament clears enabling legislations on the same such as the Banking Regulation (Amendment) Bill, 2003, amendments to the SBI Act, the Banking Companies (Acquisition & Transfer of Undertakings) & Financial Institutions Laws (Amendment) Bill, 2000 among others. With elections slated for April 2004, Parliamentary clearance might accompany a wait.

The elections might also see a step-up on moral suasion tactics by the Government on state-run banks to appease the masses. More measures like crop loans at nine per cent announced last year by the Finance Minister are likely.

On the de-regulation front, the last of the administered interest rates on the savings account at 3.5 per cent may be freed, say industry watchers.

The non-performing assets (NPAs) in the system are forecast to dip, particularly in the backdrop of the nascent economic recovery. Increased demand for goods and services will see less companies delaying repayment of loans. Alongside, the Supreme Court is expected to clear the air on the Securitisation Act with respect to the ICICI Bank-Mardia case in early January. However, asset reconstruction companies will need a gestation period of at least three years before legal wrangles are ironed out and activity kick-starts.

Banks are consciously reviewing their business model as treasury income is expected to drop. The best of the times are over, said a banker reminiscing over the last two years when banks enjoyed windfall gains on trading in Government bonds the prices of which were soaring by the day.

Dropping margins on the core banking businesses of taking deposits and lending money is making them turn towards fee-based services. Income from being marketers of services right from insurance to airline tickets is expected to form a larger proportion of bank's incomes. In developed markets, banks derive as much as 70 per cent of their income from fee-based services, said a banker hinting at the way forward for Indian banks.