The Hindu Business Line : Pvt banks gaining more Govt business

PRIVATE banks are getting more Government business. Enough to have the unions in some public sector banks quite worried. A couple of months back, the SBI staff union in Kerala expressed grave concern about the inroads that HDFC Bank had made into Government business.

HDFC Bank's market share in the collection of direct taxes in Kerala rose from six per cent in 2001-02 to 25 per cent in 2002-03. The bank collected Rs 468 crore in taxes - about Rs 30 crore more than SBI that year. HDFC Bank collected about Rs 13,000 crore of direct taxes in 2003-04. That is about 11 per cent of the total collections while other private banks chipped in with another six per cent.

Government business - collection of a variety of taxes, and payments, whether as salaries or pensions or other Government expenditure - was the exclusive turf of public sector banks until 2001.

Since then a number of private banks, including HDFC Bank, ICICI Bank, UTI Bank and IDBI Bank, have begun to establish their presence in this area.

The spur for their entry has been provided by cash-savvy Governments, both at the Centre and in various States. Put simply, these Governments want their money faster.

A couple of years back, the Central Government would get the tax remittances from banks almost 15 days after they were collected from tax payers.

By bringing private banks into the fray, the Government has managed to shave off the time taken for such remittances to just four days. Mr Rajagopal Srivatsa, Senior Vice-President and Head (Institutional Business), UTI Bank, calls this "a silent transformation".

UTI Bank has been collecting commercial taxes in Hyderabad for the last two years and began similar services in Kakinada, Guntur and Rajahmundry recently.

UTI Bank and IDBI Bank have also got a mandate to collect sales tax for the Gujarat Government.

Apart from providing cash quickly, private banks have been able to give value addition, in the form of timely information, said Mr D.C. Jain, Head, Government Business, IDBI Bank.

According to Mr Srivatsa, their reports provide division, zone, district and circle-wise collections, besides other special reports which the commercial departments find useful. At a glance, it will be possible to know who has paid their taxes and who hasn't.

What do private banks get for these pains? In terms of fees itself, very little. Mr Jain said that the fee is fixed at Rs 1.18 per thousand of tax collection or payments made. If one were to take the total volume of taxes and Government expenditure, both at the Centre and State level, the total fee is Rs 1,500 crore.

But it is not merely the fee that these banks are fighting for. Once they get the mandate to handle Government money, these banks hope to unveil their full product range and do some cross-selling - rake in more savings accounts from Government employees, pension accounts as well as sell them loans, cards, mutual funds and the like. To that end, all these banks are making presentations to various State Governments and Central Ministries. For now, they bask in the glory of being "custodian of Government funds".

Mr Jain said: "It is a proud feeling to be at par with nationalised banks."

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