Money & Banking

Private banks gear up to undertake govt business

Surabhi Mumbai | Updated on March 03, 2021

IBA needs to be accountable   -  PTI

Private sector banks are gearing up to undertake government business, and hope they will be permitted to do so from April 1.

Bankers are expecting a notification with the finer points of the announcement by the month-end.

“With the start of the fiscal year from next month, we hope that private banks will be able to start doing government business,” noted a bank executive, adding that the expectation is that a notification and working guidelines will be issued this month.

Finance Minister Nirmala Sitharaman had, on February 24, announced that the embargo on grant of government business to private banks has been lifted.

At present, only the three large private sector banks, apart from public sector banks, are permitted to do government business such as deposits, public provident fund, Sukanya Samriddhi accounts, tax payments, and pension payments, amongother initiatives.

Many private sector lenders are also willing to take up more responsibilities in the priority sector and believe that their focus on digital channels and technology will give them an added advantage.

“It just opens up for competition and the government departments will be the ultimate winner. There will be better efficiency and faster service, and could possibly even push some of the public sector banks to improve,” noted the banker.

Regional banks

According to a recent report by Kotak Institutional Equities, while the large private banks are likely to be prime beneficiaries, a few regional banks such as Federal Bank or Bandhan Bank, could also have an advantage.

“However, building these revenue streams is time-consuming and the margins are quite thin, but the access to deposits can be a source of advantage, especially for banks that rely on wholesale deposits,” it said.

Published on March 03, 2021

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