Now, private sector banks get to conduct government business

In a big booster dose for private sector banks, the government has lifted an existing embargo (nearly two-year-old) on the grant of government businesses to such banks. This would mean that private sector banks get to handle government-related banking transactions such as taxes and other revenue payment facilities, pension payments, and small savings schemes.

Private sector banks will also now get to enjoy the creamy business of playing on the float provided by government transactions and balances running into lakhs of crores, say banking industry observers.

“Embargo lifted on grant of government business to private banks. All banks can now participate. Private banks can now be equal partners in development of the Indian economy, furthering govt’s social-sector initiatives and enhancing customer convenience,” tweeted the office of Finance Minister Nirmala Sitharaman on Wednesday.

Customer convenience

This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services, an official release said. Private sector banks, which are at the forefront of imbibing and implementing the latest technology and innovation in banking, will now be equal partners in the development of the Indian economy and in furthering the social-sector initiatives of the government, it added.“With the lifting of the embargo, there is now no bar on the RBI for authorisation of private sector banks (in addition to public sector banks) for government business, including government agency business. The government has conveyed its decision to the RBI,” the release said.

However, critics see this move as yet another step of the government to pamper big corporates. They contended that private sector banks are only going to take the creamy layer of government business that will support their functioning as a commercial banks. Private banks are unlikely to take up social banking or distribution of all government schemes in a big way.

“The government’s announcement to allow government business to private banks is like feeding milk to a poisonous snake. This is absolutely not a fair decision. This is unfair. Public sector banks need government business to cross subsidise priority sector lending. Private banks are only doing commercial banking and will therefore take only creamy business, which is more advantageous to them,” CH Venkatachalam, General Secretary, All India Bank Employees Association, told BusinessLine .