The Hindu Business Line : `PSU bankers need to form cartels to do better'

Woes untold
Corporate customers are never ready to share profits but always expect banks to share their losses.
Promising SMEs too tend to develop into NPAs for banks.
PSBs sometimes need to lend at rates not competitive even while they have to borrow at higher rates.

Kolkata , June 19

PSU bankers need to form cartels in order to do better in an increasingly competitive environment, just like some of their private-sector and foreign counterparts, Ms H.A. Daruwalla, CMD of Central Bank of India, said here on Monday.

Public-sector banks, which have clients ready to shop for the best rates, are often at the receiving end when compared to other players, especially so because they are subject to strict vigilance by the Government and must operate in line with a rigid set of regulations.

The PSBs are also not often in a position to increase service charges or levy fees as easily as the private entities - a situation that at times hits their profitability.

Such banks, therefore, sometimes get an unfair deal in a market that harbours hardnosed borrowers, Ms Daruwalla mentioned, adding that corporate customers are never ready to share profits but always expect banks to share their losses.

At times promising SMEs too tend to develop into NPAs for banks because larger industrial houses are often not ready to pay smaller businessmen on time.

On another front, PSBs sometimes need to lend at rates that are strictly not competitive even while they have to borrow at rates that are turning steeper.

Listing what she called were "Basel II challenges", Ms DAruwalla referred to low-level ratings that were essentially restricted to issues (and not issuers) and capital constraints.

As banks live up to these challenges, they will need additional capital, she said, adding that entities that had proper risk management systems would have competitive advantages.

Needed accounting norms for derivatives

Derivatives, a relatively new activity for the domestic banking sector, are emerging as a bigger area for bankers. However, this is constrained by the absence of clear accounting principles, which remains a concern for all participants.

There is a need to upgrade the current accounting framework with regards to derivatives, Ms Daruwalla stated, adding that new, upgraded standards are absolutely necessary for the Indian market, especially so in view of issues such as recognition, measurement and presentation.

A progress towards the new system, which may well be tardy, should be seen in the right context, it was also felt.

More Stories on : Public Sector Banks | Derivatives Markets

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