Money & Banking

The old order changeth, slowly

L. N. Revathy Coimbatore | Updated on August 29, 2011

Old private banks are likely to be among those most impacted when fresh entrants come into the banking sector.

Caught between a resurgent public sector bank group and the fast growing new generation banks in the private sector, the old private banks are now racing to establish a pan-India presence.

Till a few years back, these banks were content to remain small. That is now changing. What is compelling these banks to grow bigger after remaining small for 40-50 years?

Is it the entry of new banks and proposed entry of more players?

Industry insiders concede that the promoters of these banks had never looked beyond their region or community for decades. The fear of being nationalised also seems to have held them back from growing bigger and branching out, notwithstanding the restriction on branch expansion plans, apart from limitations on capital.

However, that mindset has started to change, albeit slowly. Consequent to the relaxation in the licensing norms (1994), about 10 new private banks with cutting edge technology, easy access to capital and ability to hire the right set of people came into the picture. Soon they were eating into the market share of old banks.

While they initially had some breathing space provided by a lethargic public sector, that situation has changed. Public sector banks have improved their service levels and also begun fighting back strongly.

Again it was in the early 1990s that NPA norms were being tightened. (The system had close to 15 per cent net NPAs at that time. Today, in contrast, net NPAs for the system are less than 2%).

While the smaller players were busy in keeping their books in order, new entrants that didn't have legacy issues took advantage and expanded. All this has compelled smaller old banks to gear up and compete ‘Imagination of the scale was a different ball game altogether,' recalled a senior banker.

Published on August 29, 2011

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