Despite the existence of new private banks over the last two decades, PSU banks dominate in deposits and lending.
There’s the trust factor too. As economic conditions turn dodgy, despite public sector banks facing more asset quality issues than their rivals, people seem to prefer PSU names such as SBI, believing in the tacit Government guarantee.
This impression has been strengthened by the Government infusing capital year after year into PSU banks, to help them meet their capital adequacy norms.
In the last two years, SBI and its associates alone garnered about ₹3.8 lakh crore of incremental deposits; this equals the amount amassed by all 20 private sector banks put together.
“Capital too is critical for growth. In effect, the competition has been between PSU banks and a few private sector banks which have been able to bring in more capital,” says Ananda Bhoumik, Senior Director and Head, Financial Institutions, India Ratings & Research.It is also true that PSU bank employees are trying harder to woo depositors in recent years, with many banks raising the bar on employee productivity.
According to India Ratings & Research, employee productivity has improved steadily for PSU banks. In 2007-08, the ratio of deposits per employee of a PSU bank was lower than that for private players. The trend started to change from 2009-10. By 2012-13 the deposits per employee stood at ₹7.2 crore for PSU banks against ₹5.2 crore for private banks.
“While private players have brought in several innovations around products, technology and customer servicing, several public sector players have been quick to follow to retain a dominant position,” says Monish Shah, Senior Director at Deloitte India.