BANKING-The Private Way

The major changes that the new economic policy sought to introduce in the banking sector are primarily the result of the recognition that the reforms in the real sector need to be accompanied by concomitant reforms in the financial sector. If the economy has to open up to global competition, the financial sector has to offer services that measure up to global standards. The reforms process, therefore, aimed at :

Introducing meaningful competition in banking service by allowing greater role to private sector and foreign banks
Encouraging technological upgradation of banks through wide use of computers and modern communication systems and
Removing major regulatory impediments to profitable working of banks

The birth of the new generation private sector banks is a direct outcome of this reforms process. So far 9 such banks have come up during the last few years at different points of time. They are, in alphabetical order :

Bank of Punjab
Centurion Bank
Global Trust Bank
HDFC Bank
ICICI Bank
IDBI Bank
IndusInd Bank
Times Bank and
UTI Bank

While all of them are not of the same vintage and an inter-se comparative review would, therefore, be unfair, a general review of their combined performance vis-à-vis that of the other players in the Banking Sector may not be out of place. It would be particularly interesting to note how far they have measured up to the primary objectives of the reforms process, the raison d’être of their existence.

.	Deposits	Advances	Income	Profit
SBI Group	28.30	31.50	31.60	81.00
Nationalised Banks	57.00	51.50	50.00	(-) 114.00
Old Private Banks	6.50	6.30	6.40	39.40
Foreign Banks	6.90	8.80	9.60	77.10
New Private Banks	1.30	1.90	2.40	16.90
.	100.00	100.00	100.000	100.00

Competition
If we look at the segmentwise market share of the various players in the banking sector,the following picture emerges:
It is quite clear that, in terms of business (i.e. deposits and advances), the New Private sector Banks (NPSBs) are still only marginal players commanding less than 2% market share. However, in terms of income and net profit, these marginal players have wrested more than their proportionate share, viz,2.4% of the total income and almost 17% of the total net profit earned by the banking system as a whole. "One instance clearly demonstrated the strength of the emerging competition. In took eight years for the old private sector banks to gain one percentage point in market share in deposits. The NPSBs made it in one year", says the Indian Banking Review (1995-96) published by the Indian Banks' Association (IBA).
Competition, however, is not merely in market share of business or profits, it is primarily in service. Customer Service! A concept that was almost forgotten by the giant public sector banking system monopolising about 85% of the banking industry in the country. Till now it is a competition between two extreme unequals - David and the Goliath - should we say? But, as David marches on Goliath is sitting up and taking notice. The Public Sector Banks (PSBs) are putting their acts together - reorganising and restructuring themselves - all with an eye on customer service and customer convenience. Competition is indeed the key! And the NPSBs seem to have unleashed it, at least in the metropolitan and quite a few urban centres. In the coming years this competition is sure to spread to rest of the urban centres and gradually even to some of the rural centres. And the ultimate beneficiaries will be the customers for whom the banking system exists.
Technological Upgradation
Free from any hangover of the past , the NPSBs have computerised themselves right from day one. And this is not merely back-office computerisation to improve house keeping - but full branch automation, complete with Automated Teller machines, offering anytime banking services 24 hours a day, 365 days a year, making Bank holidays look irrelevant. Some of them, e.g. the Centurion Bank, have gone one step ahead and opted for whole Bank automation ( as against whole branch automation) aided by powerful Central Processing Units (CPUs) and the latest in information technology viz., the satellite communication technique through Very Small Aperture Terminals (VSATs), introducing, for the first time in the country, the "Anywhere Banking" concept. A concept that makes one a customer of the whole bank and not merely that of a branch, facilitating instantaneous on-line remittances of funds, collection of instruments and enabling him to literally carry his account along, wherever he goes across the country. Permitting him to enjoy extended banking hours, Sunday banking and even seven-days-a-week banking not merely through ATM services but a whole range of banking services including Locker facilities! The next phase of automation will see the emergence of real-time telebanking and customer terminals to access the central data base and transact business from the comforts of one's home or office anytime of the day or night, any day of the year, from anywhere across the country. Centurion Bank, again become the pioneer in introducing this novel concept of branchless banking!
NPSBs are thus all set to revolutionise the very structure of traditional banking services and bring it on par with global standards, justifying their coming into being to the pioneers of the policy of financial sector reforms.
As the economy opens up and Indian trade, commerce and industry get increasingly exposed to global competition, they would need the support of an enabling banking system, of world-class standard, which is available to their international competitors. This is what the NPSBs are all set to offer. And this is the cutting edge of their competition vis-à-vis the Public Sector Banks and even the foreign banks operating in India. Bogged down as they are with the hangover of the past, the older banks, with their wide network of branches and huge manpower resources seeped in traditional mindset, will be somewhat slow to change, however much they may feel the urgency to reform. Meanwhile, it will be for the NPBSs to provide the leadership in creating a growth-inducing, lean, agile, productive, financially strong and profitable, modern banking system, comparable with the best that is available anywhere else in the world.
Removal of Regulatory Impediments
In keeping with the spirit of reforms, the Monetary and Regulatory Authorities of the country have been removing the many shackles which had kept the Indian banking system within the narrow confines of a sheltered environment. With the gradual removal of the barriers, a fresh dose of which was seen in the slack season Credit Policy just announced by the RBI Governor, the Banking System is now almost free to decide on a host of key areas including interest rates (both deposit and advances), credit assessment and credit dispensation, range of forex operations and so on.
However, one must sound a note of caution here. The decades old mind-set which is deeply rooted in the Indian psyche is that a Bank's performance should be judged by the quantum of deposit mobilised, advances disbursed and number of branches opened. As a result, most banks try to show rapid growth in these areas irrespective of the cost of such deposits, quality of advance and profitability of the branches. Some of the NPSBs also fell a prey to this temptation to achieve
visibility at the cost of health. With the new found freedom, this temptation would be even greater. Wisdom would lie in controlling the temptation and behaving more responsibly instead of engaging in mindless competition to attain visibility. Freedom becomes licence if not used with responsibility. This lesson of history applies with equal force to the policy at large as it does to the Banking System.