The Hindu Business Line : PSBs urged to tap rural markets

Banking meet: (From left) Mr M.S. Sundara Rajan, CMD, Indian Bank; Ms Usha Thorat, Deputy Governor, Reserve Bank of India; Dr K.C.Chakrabarty , CMD, PNB; and Mr T. S. Narayanasami, CMD, Bank of India, at a national banking conference and research seminar organised by Indian Bank in Chennai on Friday. –

Our Bureau

Chennai, Aug. 10 Public sector banks have been losing market share to new private sector banks and foreign banks. Their share in terms of total assets has come down from 80.2 per cent in 1997-98 to 70.3 per cent in 2006-07. In terms of total business, it has come down from 80.9 per cent to 73 per cent.

How should the PSBs compete in this scenario ? By using their strengths—large branch network and manpower—to tap the potential of rural markets, Ms Usha Thorat, Deputy Governor, Reserve Bank of India, said today.

Delivering the keynote address at the ‘National Banking Conference and Research Seminar’ on “Managing Next Generation Banking”, organised here by Indian Bank as part of its centenary celebrations, Ms Thorat noted that the emergence of a 50 million-strong rural middle class provided a huge market to PSBs. She urged the banks to use information technology to tap into this rural market.

Speaking at the seminar, Mr R Ravimohan, Managing Director and Country Head, Standard & Poor’s, said that he did not believe that retail loans were risky. He noted that in the last five-odd years about 50-60 million jobs had been created. The newly employed are potential customers for banks—they want all kinds of loans.

Mr Ravimohan noted that the retail part of bank credit was among the lowest in India, at 10 per cent, compared with 14 per cent of China, 36 per cent in Malaysia, 40 per cent in Korea and over 50 per cent in developed countries such as Japan and the US.

Expressing similar views, Dr K. C. Chakrabarty, Chairman and Managing Director, Punjab National Bank, observed that in the past 37 years, the rural Indian was not considered credit worthy. But today, technology has made it possible to include them in the financial sector.

Mr Ravimohan also made an observation that the intermediation costs in India were very high, even after taking into account the high mandatory set-asides such as SLR and CRR. He observed that in all the large cross border acquisitions of Indian companies in the last five years, Indian banks did not get any lending opportunity. He said that there was a need to bring down intermediation costs by 300-400 basis points.

While noting that there were risks in cross border buy-outs—CRISIL itself had downgraded several acquiring companies—banks should develop expertise to read the risks and participate in the business he said.

Another speaker, Dr Mridul K Saggar, Director (Financial Markets), RBI, said that while banks had come a long way in improving their risk assessment capabilities, they still have some way to go.

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