No extra govt biz for private banks for 3 years

Finance ministry says they are not doing enough to help Centre?s financial inclusion agenda

Private sector banks eyeing a larger share in government business worth some R1 lakh crore a year may have to shelve the idea for another three years.

Concerned over private banks’ ?failure? to assist the Centre’s financial inclusion agenda and their perceived inability to meet priority sector lending targets, the finance ministry has asked the RBI to not give these banks any additional government business.

“The finance minister has personally approved this move,” an official, who did not want to be named, told FE.

Government business includes collection of direct and indirect taxes, disbursement of pension and expenditure related payments of the ministries/departments and also that of state governments.

Of the total government business, around R20,000 crore pertains to the Central government and the rest to state governments.

Since August 2003, four private sector banks ? ICICI Bank, UTI Bank (now Axis Bank), HDFC Bank and IDBI Bank (currently a public sector bank) ? were permitted to undertake government business as agents of the RBI. They handle about 10-15% of the total R15,000-20,000 crore central government business. The remaining is carried out by Public Sector Banks (PSBs). ICICI Bank, HDFC Bank and Axis Bank did not respond to email sent to them, seeking their responses.

The ministry’s move follows findings that these banks failed to meet certain additional criterion (apart from the financial / technical parameters) fixed by the RBI to carry out government businesses. The additional parameters include meeting priority sector lending targets, satisfactorily implementing government schemes and supporting government?s social initiatives, deepening financial inclusion and providing financial services to the weaker sections of the society.

However, the official said the ministry has not sought a ban on the private sector banks from carrying out their existing government business operations. The ministry wants the RBI to carry out a comprehensive review of the policy of authorisation of government business to private sector banks.

The banks are given an agency commission by the RBI for handling government business. The commission varies for different business activities such as receipts and payments. The banks also get the advantage of the free float and can invest the amounts for returns, in addition to the prestige of being a preferred agency to do government business.