Money & Banking

Customers stand to gain as private banks can now take up govt business

Surabhi Mumbai | Updated on February 25, 2021

PSBs may lose ground; unions say private banks lag behind in govt schemes

The lifting of the embargo on granting government business to private banks will not only enable them get a greater share of government business, but will also benefit their customers, say experts.

“Customers of new private sector banks will be very happy, there will be a marginal change for old private banks and public sector banks may lose some ground,” said a former banker.

At present, apart from public sector banks, only a few large private sector banks are allowed to do government business.

Now, all private banks will be able to take up activities such as small savings schemes such as public provident fund and Sukanya Samriddhi accounts, and tax payments and pension payments, among other initiatives.

Customers with existing accounts in a private bank will not have to approach a public sector bank for these activities.

“It will be a gain to the customer as well as to the bank. Apart from the three large private sector banks, other private banks can also now serve customers for services such as tax payments, pensions and small saving scheme,” said Prashant Kumar, Managing Director and CEO, YES Bank, adding that private banks can also offer solutions to the government for payment of subsidies and direct benefit transfers through their strong focus on technology.

Tech advantage

Most private bankers believe that in terms of technology, they are much better positioned to serve customers.

Uday Kotak, Managing Director and CEO, Kotak Mahindra Bank, in a tweet said: “It will enable the banking sector to serve customers better. Private and public sector must both work towards sustainable development of India.”

Private banks are also hopeful of higher fee income and float from doing government business.

“Fee income will be a direct advantage to private banks as they will get commission for doing government business. Public sector banks will lose ground on this,” noted a former banker.

Meanwhile, float or the amount parked with banks by customers, is being seen as another big positive by private banks. Government business brings in float money to public sector banks, some of which will now be routed to private banks.

“The float and fee income that can be garnered on tax collections (₹11 trillion budgeted for 2021-22), duties, GST collections (₹11 trillion), payment facilities, Central/state pension plans (₹2 trilion), small savings schemes (₹13 trillion) can add significant delta to revenues,” said a note by ICICI Securities.

Unions unhappy

However, bank unions point out that public sector banks have been at the forefront of opening Jan Dhan accounts, financial inclusion through branch opening in rural areas, as well as giving out Mudra loans while private banks have lagged behind.

“The government is trying to bring a level-playing filed with a different set of guidelines for private banks. They should create the same rules for them and bring them under the ambit of CVC and other regulatory guidelines,” said Soumya Datta, General Secretary, All India Bank Officers’ Confederation.

Published on February 25, 2021

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