Will 2013 be ‘annus mirabilis’ for banks?
For most part, the year 2012 seemed an annus horribilis (a horrible year) for the banking sector as public sector banks that account for nearly 75% of the sector’s business saw their autonomy and earnings worsen.
Starting with “regular missives” from the finance ministry, an unrelenting regulator on interest rates, the year was dominated by past business bets gone bad resulting in mounting restructured assets for the public sector banks (PSB).
The year saw the department of financial services sending around 40 directives to PSBs, in a bid to push them out of their “lazy banking habits” and force them to focus more on lending to agriculture and small and medium enterprises.
One of the many notifications from the ministry was in July, when it shot a letter to the chairmen of PSBs asking them to limit their bulk deposits to 15% of their total deposits. Smaller PSBs have a larger share of bulk deposits and found it difficult to raise funds.
This “micro-management” and “erosion of the PSBs’ “operational autonomy” led to tension and criticism including even from RBI which said the government is not allowing these banks to take into account decisions based on commercial considerations.
If restrictions on their business were not enough, new business for banks seemed conspicious by its absence as companies’ investment came to a halt. RBI’s reluctance to cut rates due to inflation kept the interest rate cycle elevated and coupled with a fiscal policy logjam over project clearances, the urge to invest among
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