What’s a PSB? To commence with the expansion of the acronym PSB – Public Sector Banks. A bank is termed nationalized@public sector, wherein the majority stake is held by the government. A percentage exceeding fifty-one would bestow the majority shareholder title to the government. The diatribes on PSB’s, in specific about their modus operandi & performance does feature at regular frequencies in the media.
An all-embracing view : A blend of PSBs, private-sector and Co-operative banks are the dominant constituents of the Indian banking industry. As an aside from the major players, digital banks like Jio, Airtel & small finance banks have set foot in the industry. Non-native banks, in India have had a longstanding ornamental presence. Banks fall under the purview of Banking Regulations Act, 1949. Reserve bank of India (RBI) standalone eagle views the affairs of the PSBs and private ones. The regulating authority for Co-operative banks implicitly falls under the concurrent list, where in both RBI (GoI) and respective state government exercise control. On account of the duo-control, who will spearhead the bail-in operation for a co-operative bank has been a bone of contention. A testimony to this is an incident with a Maharastra based co-operative bank in the recent past.
The count of PSBs have taken the shape of a bell curve vis-a-vis post-independence era. The count skyrocketed since the nationalization measure instigated by former prime minister Ms.Indira. The incumbent finance ministry has taken a bold initiative of creating “Bigger strong banks” by merging PSBs. Incumbent, there are 12 PSBs in operation. The objective of nationalization was to infiltrate rural credit growth and banking. Albeit, the progress made is quite appreciable but has the cost the government dear. The cost is borne by the PSBs ultimately.
What dents the performance of PSBs?
To begin with, Coveted Jan-Dhan account scheme (Zero balance & zero charges) would have gone out of the question without PSBs. Private Sector ones are mandated to provide Jan-Dhan account services when approached, however owing null income from such accounts, the count of such accounts with private ones remains a far cry from that of its public counterparts. All transaction charges pertaining to such accounts are borne by the banks!
Secondly, PSBs are the torch-bearers when it comes disbursement of agricultural credit. Albeit, it’s an appreciative aspect; such loan balances more often than not falls into the waiver / NPA (non- performing assets) caskets. Parties fulfil their election manifesto of agricultural loan waiver at PSBs cost. Through this, they do gain an unfair publicity at the exchequers cost. Indeed its high time, Election commission of India (ECI) places strenuous review requirements before parties get vocal about their manifestos.
Thirdly, the spread of PSB network is far wide. Albeit, there is no competitor to match the network spread of State Bank of India (SBI). PSBs shoulder the government’s ambition of making banking facilities accessible even in the eminently inaccessible pockets of India. Rural branches often turn out to be not profitable for the banks on account of fragmented business activity and population. Maintaining a branch is often a white elephant affair! Private sector banks often take a calibrated call before setting up a branch.
Penultimately, PSB chirp in as white knights when private ones are in the lurch of solvency issues. To instill depositors faith in the GoI, banks are seldom allowed to collapse. Either a merger takes place or an idiosyncratic move as in the case of YES bank fructifies. Hostile takeover vis-a-vis companies, merger vis-a-vis banks! In the recent times, a pragmatic instance of “substance over form” took place. Whatever happened with YES bank’s instance is a take-over in substance but not in form. Legally, SBI and YES bank are separate entiites albeit,SBI’s emeritus have taken the onus of steering YES bank. SBI stands with it’s restricted holding of 49% in YES bank. Soon are the days, eventually bank can declare insolvency when Financial Resolution and Deposit Insurance ( FRDI ) bill gets promulgated. FRDI had a bailout clause at depositors cost, albeit stands withdrawn incumbent. Recaptulating from the budget, we are guaranteed upto Rs 5lakhs insurance cover on deposits with every bank. The. quantum and frequency of invoking the DGIC ( Deposit guarantee and insurance corporation) insurance cover remains a question for the future.
Finally, bureaucracy and red-tapism embedded in the system are often an impediment denting their performance.
Barring these there are quite a few aspects differentiating PSBs from it’s private counterpart’s. Even though the performance and dividends expected from them remains levelled. Is it fair to compare caged-golden parrots with the ones that have the leeway to fly??? Let’s ponder…