After I left the Institute in 1997, I moved my account to a private sector bank and, until a few days ago, had no occasion to visit the branch offices of any public sector bank for six long years. As readers may recall, I am in the throes of purchasing a flat, and was trying to get a fix on a mortgaged property. Since the owner was finding it difficult to pay the loan installments. I offered to repay the entire loan and lift the mortgage as part price of the flat. However, with his consent, I wanted to meet the bank manager and fully check the documents before taking such a decision. A meeting was arranged.
So, after half a dozen years, I entered a branch of a public sector bank located at Okhla. I was immediately down memory lane. Very little had changed. Every nook and cranny of the bank was still stuffed with dust laden files and ledgers many of them spilling out in unruly lots onto untidy corridors. There was the same standard furniture: Godrej or similar tables with sun-mica tops stained with tea; and chairs that had towels wrapped around their arm-rests still indicated the seats of officers. True, there were many more computers, but the keyboards and terminals were grimy and in desperate need for a thorough scrub. The branch still looked as over-staffed as the Indian Bank branch on campus. Similar to my dear old branch, the somnolent be-whiskered chowkidar just didnt seem to have either the physique or the ability to use the double-bore shotgun that he carried like a cross. And, the branch manager was exquisitely polite, almost in a smarmy way.
Since the account that I was enquiring about had already started heading towards becoming a sub-standard loan, the manager was delighted to find a soul who was willing to pay the outstanding amount even though he was going to lose income on it. After plying me with nimbu pani, he even tried to persuade me to take a loan from his branch, which I politely refused. The papers were brought out and examined, and photocopies changed hands. Soon thereafter, he asked me whether the CII and his branch could do some business together. What kind of business I asked. Somewhere where we can loan money to your member companies, he replied.
In a flash I understood the mans predicament and realised that it was no different from many of his ilk in public sector banks. Here was his problem.
His branch, like most other urban, semi-urban and wealthy rural branches of public sector banks, is absolutely brimming with funds. The countrys household savings rate is still above 25 per cent of its GDP; and the top 20 per cent account for almost 60 per cent of that savings. With the equity market having gone for a toss, most of this money is pouring into post offices, small savings schemes and the savings accounts of banks.
Banks, therefore, are piling on liabilities like never before. But the problem for this bank manager is that he just cant find a way of getting corporate customers. Although the economy is beginning to pick up, nobody in the Okhla Industrial Area is wanting to borrow big bucks for fresh investments. After four to five years of dealing with difficult business conditions, most companies have also become much better at their working capital management. So banks are lending less working capital for the same turnover. Besides, customers have become more savvy. As banks are getting increasingly desperate to flog their excess cash, debtors are demanding, and getting, finer and finer rates. It is a fact that corporate banking has stopped bringing in any profits. If anything, it loses money.
This is true of all banks, you will say. Whats so special of public sector banks Most of the better private sector banks have responded to the surplus liquidity problem by pushing the retail banking business. This has happened over the last five years, spearheaded largely by private sector banks such as HDFC, ICICI Bank, Citibank, HSBC and, more recently, Stanchart. A few public sector banks have also got onto the act but only a few, and without sufficient conviction. Why so
There are many reasons for this. For one, since retail banking is spread over a much larger, heterogeneous and dispersed customer base, it needs best-in-class information systems to assess customers, monitor risks and service clients on a real time basis. Public sector banks have been, in general, much slower off the block in setting up their IT backbones to attract, retain and service retail customers. For another, public sector banks historically didnt have a retail banking, customer servicing mindset. Until six years ago, there was no dearth of corporate business at high rates of interest with company executives coming to banks and begging for dear money. Public sector bank managers still havent transformed from being imperial fund allocators in a supply constrained regime to being marketers of money in times of plenty.
The Okhla branch manager realises the need for going out and selling his wares. He is being pressurised by the head office to get more loans. But he just doesnt know how to go about it. He never had to; and he is no different from 95 per cent of his brethren in other public sector banks. He epitomised the central problem of public sector banks. It is not inadequate computerisation; it is not the dirty files spilling onto the corridors; it is simply that no public sector bank has the human resources which can be motivated and empowered to go out and seek business in a fast changing world. After all, the Okhla branch manager will lose nothing by having his liabilities increasing at twice the speed of his assets. But at least he tried.
The author is the Chief Economist of CII. These views are personal