Plight of Indian state-run banks
A BANK job has traditionally been one of the most sought after positions among the Indian youth, especially a job in a state-owned bank.
Thousands of youngsters apply for jobs in public sector banks and there are newsletters and journals that have come up, specialising only in vacancies in nationalised banks.
A job in a public bank is considered to be the safest, with virtually no chance of the employee being sacked or demoted. Promotions are steady, the salary and other benefits are good, there’s hardly any stress in the job, timings are relaxed and best of all, there are plenty of ‘bank holidays’ in a year, besides the regular leave.
And of course, a dozen-odd additional holidays, thanks to the strikes and bandhs that the trade unions call for on the most frivolous grounds (and coinciding with a public holiday, so that the employees get two to three days off at a stretch), ranging from high inflation, hike in fuel prices, to growing corruption, or opposition to reforms.
Last week saw more than a million employees of public sector banks take a three-day break; the first day was a bank holiday, and the other two were forced holidays as the bank unions called for another strike, protesting against opening up several sectors of the economy to foreign direct investment, high inflation, opening up of banking to new players, divestment in government banks…the list of grievances can be endless.
Public sector bank employees are the most pampered of the lot and forever complaining about grievances. And customers of these banks are the worst sufferers – both during strikes and during working days – as employees at the state-owned institutions treat them shabbily with no fear of being hauled by the management.
A visit to the branch of any state-owned bank can be a nightmare, especially for those used to better service standards at private sector or international banks. Many employees are grouchy, often rude and treat the customer as an intrusion. Though nationalised banks have spent billions of rupees in recent years in doing up the branch interiors, improving the infrastructure and splurging on new brands, logos and colour combinations, the service standards are appalling.
Customers have to stand in long queues even for basic queries, counters are arbitrarily shut down in the middle of transactions and an ordinary task that should not take more than a few minutes can stretch for an hour or more.
Of course, the vast majority of retail customers at these banks are those who cannot afford to maintain a higher minimum balance that private banks demand. They include the poor, struggling students, senior citizens and pensioners and government employees forced to bank with the state-owned institution.
BANKING technology in India has changed dramatically in recent years, especially after the opening of the sector to private banks. Consequently, affluent and middle-class consumers patronise private banks and are immune to PSU bank strikes.
Tech-savvy customers hardly visit branches – many private banks also discourage their customers from visiting brick and mortar branches – avoid writing cheques (preferring online payments) and use their online bank services to buy a host of products and services, including air, bus and railway tickets, consumer durables, books and music, pay their utility bills and taxes and get statements relating to their accounts.
Even in terms of the technology deployed, public sector banks lag behind their smarter and quicker rivals in the private sector. Top PSU bankers argue that they are strapped with legacy issues, including aggressive unions (most private sector banks do not have any unions; consequently, the management of many private banks are exploitative and make their employees work long hours and even on holidays).
PSU banks are also under intense pressure to provide loans to businesses and individuals on the recommendations of politicians. Quite often, the loans are taken with the borrower having no intention to repay them. The loans turn bad and lead to a burgeoning non-performing asset (NPA) portfolio.
The worst example of the manipulation of public sector banks was in the 1980s, when a junior finance minister from the Congress ordered bank managers to organise loan ‘melas’ where the poor were supposed to be the major beneficiaries. But much of the loans were cornered by local politicians and their lackeys, most of who never returned the loans, adding to the burden of state banks.
NPAs continue to pose a major problem for the Indian banking industry, especially for nationalised banks. Last week, ratings agency Care revealed that NPAs of banks have shot up by 43.1 per cent to Rs1.79 trillion during the first three quarters of the fiscal (April to December). But the agency noted that provisions, which had risen 38.7 per cent last year, were up by just 4.1 per cent.
Another study of NPAs of listed banks by NPAsource.com, a consultancy, indicates that their bad loans portfolio rose by 50 per cent during the first nine months of the fiscal. The net NPAs of 40 listed banks shot up to Rs923.98 billion on December 31, 2012, from Rs615.58 billion in April.
Sixteen of the 40 listed banks saw their NPAs jump by more than 40 per cent. Among the worst performers were three large PSU banks – State Bank of India (SBI), the country’s largest commercial bank, Bank of Baroda and Punjab National Bank.
INTERESTINGLY, many of the CEOs of nationalised banks wield the big stick when they take over, sweeping away bad debts by making huge provisions, which result in a steep fall in profits. Last year, for instance, SBI’s net profits plunged by almost 100 per cent, as the new chairman cleaned up the balance-sheet by making hefty provisions for bad loans, incurred when his predecessor was the chief.
Recently, the chiefs of two other nationalised banks – Bank of Baroda and Canara Bank – made similar provisions after taking over, resulting in a sharp fall in their quarterly profits. The new boss wants to start on a clean slate and by reducing the net profit sharply, he would ensure that during his tenure the fortunes of the bank are on the rise.
With tougher capital adequacy norms kicking in over the next five years, Indian banks (especially state-owned ones) have to go in for fund-raising exercises. According to Crisil, a ratings agency, Indian banks would need to raise Rs2.7 trillion by March 2018 to meet the capital requirements under the Basel III international norms.
About Rs1.3 trillion should be raised by way of equity capital and the remaining as non-equity funds. The agency believes that “while India’s banks are comfortably placed to raise the equity capital component, the key challenge lies in raising non-equity tier-I capital, given that the instruments’ features are riskier than under Basel II.”
According to Crisil, many banks may find it difficult to raise non-equity capital as these instruments carry higher risks. And because of the higher risks, the instruments will be costlier. Crisil feels that it is crucial for India to develop bond markets.
“The government of India can consider investing in non-equity tier-I instruments of public sector banks through the holding company for PSBs proposed by it, thereby developing market acceptance for such instruments,” said the report.