The Hindu Business Line : Banks’ blues come to the fore

Hamstrung by govt stake: (From right) Mr Joydeep Sengupta, Director of McKinsey; Mr O. P. Bhatt, Chairman, SBI: Mr Sanjay Nayar, CEO, Citigroup India; and Mr P. J. Nayak, Chairman and CEO of Axis Bank, at a banking seminar in Hyderabad in Friday.

Our Bureau

Hyderabad, June 13 A candid discussion on strengths and weaknesses of public, private and foreign banks by the top honchos of banking industry marked a panel discussion on the competitiveness of banks in India at the Indian School of Business (ISB) here on Friday.

Participating as one of the panellists at the one-day banking conference organised by ISB, Mr O. P. Bhatt, Chairman, State Bank of India, said 51 per cent stake by the Government in public sector banks had turned a hindrance for raising capital in public sector banks (PSBs).

While banks were successful in serving the needs of the economy between 1980 and 2000, the PSBs were finding it more difficult to serve the economy now, he said identifying estimated $600 billion spending on infrastructure in next five years, expanding middle class and growing per capita consumption as some of the challenges.

``In these circumstances, talent, operation and control and ownership are biggest issues for PSB banks in achieving competitiveness,” the SBI chairman said.

Making a comparison with private and foreign banks, Mr Bhatt said PSBs were also shouldering many social-macro economic objectives such as financial inclusion, agri-lending targets, implementation of Government schemes which, some times, may result in lower asset quality, he added. “In addition, we also have to deal with staff unions, whose interests are not the same as that of the bank or country. They hold managements of banks to ransom,” he lamented.

Dr P. J. Nayak, Chairman and CEO of Axis Bank, said choice of operational/business models would have a bearing on profitability of a bank. The key drivers for growth of private banks so far were huge technology adoption and ‘destination BPO model’ which allows separation of sales and operational works from processing work, among others, he said. “However, whether there will be continuation of this over a period of time remains to be seen,” Dr Nayak added.

Under-capitalised

Speaking for foreign banks, Mr Sanjay Nair, CEO of Citigroup India, said ownership pattern was a key parameter, and added that the banking sector in India was “highly inadequate and highly under capitalised.”

The foreign banks in India were constrained by difficulty in getting licences for new branches and ATMs and expanding the capital base. ``The RBI at operating level is unable to understand the MNC governance models leading to many hassles,” Mr Nair said.

``In these circumstances, foreign banks, including CitiBank is focussing on off-balance sheet items such as investment banking, wealth management services and forex, he said.