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Private Banks
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Public Sector Banks
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Observation
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Conclusion
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1. Prime lending rates is around 15% p.a..
Scrutiny of application is serious and to the point keeping in view the repaying capacity of the applicant. Experienced, knowledgeable and specially trained officer in advances are only delegated powers to sanction the credit.
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Prime lending rate is around 12%
Scrutiny of application and inquiry about applicant is very casual and final sanction of credit depends less on quality of borrower but the quantity of bribe they offer to credit sanctioning officer (there are exceptions too). Quality of officer plays insignificant role while delegating power to sanction but his ability to please the higher bosses plays dominant role in the process of sanction of credit to borrowers.
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Credit delivery is more in private sector banks and hence their credit growth per year is more than their counterparts in public sector.
Good advances in PSU banks are less and this is why quantity of bad advances increases year after year.
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Private sector banks are faster, customer friendly and transparent in taking decision on credit delivery.
They sanction credit keeping in view only security norms, credit worthyness and recoverability of loans whereas public Sector banks sanction credit only when their sanctioning authorities expect to fulfil their vested interest (either in cash or in kinds).
Credit delivery is not fully dependent on interest rate. Obviously demand for reducing lending rate in public sector banks is of less significance.
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2. Deposit rate is higher in private banks than that in PSU banks. Highest rate in Private banks is around 10%.
Relentless effort of FM has failed to impress private banks to reduce rate of interest
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Highest rate of interest offered on deposits in PSU Banks is around 8%.
For bulk deposit rate is 7% or less.
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Profit in private banks in proportion to their capital base and their network of branches is more than that of PSU banks
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Deployment of funds, disbursement of credit and investment strategy of private banks solely depend on profitability of banks whereas that of PSU banks keeps in view personal instruction of Ministers and VIPs of the ruling party.
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3. Average pay of employees of private banks is more and average number of staff per branch is far higher than their counterpart in public sector banks
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Many old or new branches run with staff strength of less than five in comparison to 15 to 20 in private banks.
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Productivity per employee in private sector banks is higher.
Rate of growth of business is far greater than that of PSU Banks
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Utilization of staff is more effective in private banks inspite of higher pay packets.
Rate of generation of employment in private bank is more than that in PSU banks.
There is more exploitation of staff in PSU banks at some places and there is no use of staff in many Metro branches due to defective HR policies and due to flattery culture prevalent in PSU banks
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4. Private banks gives more work to outsourcing agencies. There are separate wings for credit sanctioning, monitoring and recovery of loans
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PSU banks avoid outsourcing agencies.
Same officers is entrusted the duty of credit delivery, monitoring, repayment, other fee-based business like Insurance, demat accounts, and housekeeping duties.
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Customers are happier in private banks as far as service is concerned inspite of the fact that service charges are more compared to that of PSU banks. Credit delivery decisions are taken fastly and comfortably.
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Customers are ready to pay higher service charges when they get quick and convenient service from banks.
Customers are able to use their fund more effectively and profitably in private banks.
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5. Government funds cannot be parked in Private banks even when rate of interest offered on deposit is higher. Rate offered by banks on bulk institutional deposit is 8 to 10%
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Government has instructed all public sector undertakings to deposit their surplus funds in PSU banks only and not to insist for higher rate .PSU bank ‘s offer 7 to 7.5% rate .
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PSU’s like ONGC, IOC, and Elec. Boards have to incur loss of interest when they are forced to opt for PSU banks even at lower rate of interest.
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PSU banks are getting privileged treatment whereas private banks are getting step motherly treatment. Despite this business growth and profit of private banks is higher
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6. Government departments open their current or savings account in PSU banks. As such Interest free CASA deposit received from government department is far less in private banks
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Most of the department fully or partially owned by the government keeps their running fund (for development or for establishment) in SB or CD a/c in PSU banks. This helps PSU banks in getting greatest chunk of Interest Free or Low cost CASA deposit from government departments
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Mainly retail depositors constitute CASA deposit in Private Banks whereas that in PSU banks by government deposits.
If government withdraw entire fund from PSU banks or claim minimum Interest on their fund parked in CD or SB a/c, most of PSU banks will go in red. Lacs of crores of rupees are lying in CD or SB a/cs in various PSU banks especially in SBI and its associates.
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Profits shown by PSU banks are largely due to CASA they get from government offices. For this purpose there is inter bank competition among PSU banks and bank officers in various PSU bank. They do not hesitate to offer costly gifts to effective officers in government departments to acquire their fund and this illegal money is managed either by resourceful business groups (Bribe earned in lieu of sanction of credit) or by fictitious expenses
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7. Credit monitoring and recovery of loan is better in private banks because workers are loyal to their banks. Officers in private banks are more worried about health of credit they sanction because they know that their survival and promotion depends on profit of their branch.
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Credit monitoring and recovery is very poor because of poor staff strength or due to lack of initiative by responsible officers.
In the name of achievement of advance targets, focus of officers is always to earn bribe money by sanction of credit, share with their boss and ultimately get better posting and quicker promotions.
In PSU banks their bosses treat corrupt officers as star performers.
On the contrary, honest and loyal officers are used to eliminate or reduce the irregularities of advances created by so-called star performers and blue-eyed executives.
As a result good officers leg behind in career path compared to corrupt officers who can please bosses.
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Advances in PSU banks become bad in short period but the officers are forced to conceal the bad advances and treat them Standard against the prudential norms set for classification of assets by RBI.
PSU banks have been accumulating bad advances in Standard Category either by restructuring or by hiding them from the eye of auditors and thus resorting to less provision for increasing profits and showing less ratio of Net NPA in their Balance Sheets.
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Profit of private banks is truly earned whereas that in PSU banks is earned by window dressing and by manipulation.
Flattery Culture is the killer cancerous disease, which has infected majority of top ranked officers and which has given rise to corrupt practices and thus jeopardized the actual health of PSU banks.
On the contrary Honest, Sincere and devoted officers prosper and occupy dignified position in private banks which help in safeguarding assets of the bank and earning real profit.
Those MD’s who know the ground reality and who are worried about the real health of the asset can only provide real diagnosis to bad assets and also punish to bad officers before it is too late. Unfortunately MD’s of PSU banks are also busy in greasing Ministers for best placement.
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8. Private banks changed their policy and strategy when they found that large scale retail lending has contributed in increase in NPA.
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PSU banks think it better to hide bad advances and hence do not take corrective steps to avoid assets turning bad.
They want to show undue growth in business to compete with private banks and earn the praise of Ministers
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Private banks are now-a-days slow in retail lending whereas most of the PSU big banks have opened specialized Retail Asset branch for expeditious lending in Retail sector.
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Future of recovery of Education loans, vehicle loan and even house loans in PSU bank is darker and there is no doubt that government will have to provide bailout package for such banks as they did for agricultural lending
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9. Private banks have created an atmosphere where borrowers are afraid of seizure of asset if they fail to pay three or even lesser number of installments.
These banks take the help of recovery agents who resort to day to day monitoring of each borrower.
Bad advances are less in private banks and bad borrowers keep away from private banks.
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Borrowers of PSU banks manage officers, Branch Managers in banks , judges & advocates in courts and ministers in the government to avoid legal hard action for non-repayment of loan in time. They are not afraid of any action when they do not repay the loan in time.
Bank officers take least interest in repayment of loan and quality of advances.
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Private banks are able to extend higher amount of credit compared to PSU banks despite global recession affecting adversely Indian economy and despite slowing demand.
Private banks did not oblige even FM by reducing lending rates whereas PSU banks have done so.
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Executives in PSU banks are less worried about the future of bank, and more worried about their own future.
Top executives in PSU banks are corrupt and hence bad culture percolate down the level.
Government is infusing capital in PSU banks from time to time. Private banks on the other hand are to survive at their own.
Tax collected by Indian citizen for development is lost in saving the sinking bank, wrongful acts of corrupt bankers and vote oriented policies of politicians. Our leaders proudly claim that Indian banks are safe
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10. Auditing work is carried out with all sincerity at most of the branch and also at central level. There are very few cases of Special reports or CBI cases or fraudulent delivery of credit or irregularities in advances.
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In PSU bank most of the branch suffer from irregularities, special reports and fraudulent disbursement of credits. Auditors are gifted to submit favourable report and not to expose the bad advances or irregularities.
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There are more Rajus (Satyam Scandal) in PSU banks than in Private banks. Officers who indulge in bad practices get the patronage of top executives and those who think for the safety of the bank are either shunted or used to clear the irregularities created by Yes- man of bosses.
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Work of auditing is of no use in government owned banks. It is open secret that CA’s in India only sell their signature and in general they do not take pain in verifying the real quality and quantity of asset of the bank
If bank officials extend Auditors red carpet welcome, auditors shut their eyes and ears and submit only positive features ignoring bad points of the branch. Otherwise hell is unavoidable.
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11. Private banks employ more staff, do more business and earn more profit
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PSU banks exploit staff, create less employment opportunity, do less business, earn lesser profit
Profit of many PSU banks have gone down despite increase in their business.
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Exploitation of staff, concealment of bad advances and low cost government deposit in PSU banks plays key role in earning profit by PSU banks.
Now cash deposit charges adds to profit.
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If rate of interest on deposit and advances is made uniform for Private and PSU banks, there is no doubt that private sector banks will outperform and show better results keeping banks healthier than PSU banks.
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12. Loans waived under Agricultural Debt Relief Scheme of Government of India has least affected Private banks
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Loans amounting to Rs.70000/- crores were waived as per instruction of Government of India. This has resulted in bad culture. Good borrowers also avoid repayment of loan they take only with the expectation that government will sooner or later waive their loan to get their votes.
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There is no repayment culture in PSU banks.
Even court cases do not yield any fruitful result due to lengthy and corrupt judicial process
Recovery under DRT act or SARFASI act or PDR act is also ineffective, time consuming and unproductive.
Even government of India or politicians do not like hardness in recovery of bad advances.
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Large chunk of good money is blocked in bad borrowers and causing liquidity crisis.
Even after release of considerable amount of fund from RBI through cut in CRR, there is no growth in credit.
Banks said to be passing through liquidity crisis find it beneficial to park surplus find in RBI at Reverse Repo rate (3.5%).
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13. Share of Private Banks are traded in Share market at PE value of 10 and more
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Shares of PSU banks are traded with PE value far less than 10, (on an average at 5 compared to average 10 for private banks)
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Market image of private banks is still better than that of PSU banks. This is despite the fact that service charges are higher in private banks.
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Customers prefer quick, transparent, and comfortable service with smiling officers of private banks than to deal with irritating PSU employees even if they have to pay higher service charges and higher rate of interest
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14. Promotion and posting in private banks is decided by the yardstick of performance
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Promotions and posting in PSU Banks are not at all related to performance in practice though there is marking for performance. Interview marking has the capacity to make or mar the career of an officer.
This is why officers with good track record of two or three decades are rejected whereas even charge sheeted and suspended officers are promoted in the Promotion process.
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If the officer in PSU banks provides cash, gift, gold, foreign wine bottles, woman to their bosses and extend warm welcome in top star hotels his promotion is sure and posting is at cream places. Otherwise he has to sweep the malady caused by blue-eyed officers who are in good book of top bosses.
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Quality in PSU banks has got no place.
Hard workers are not getting honourable and respectable place among the team of executives and their posting is always at critical places.
On the contrary flatters of the bosses has the option to express their choice posting and timely promotion.
Written promotion policy is twisted as per whims and fancies of the top executives during Interview.
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15. Personal Assets of officers working in Private sector banks workers has not grown
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Personal assets of PSU Bank officers and their kith and kin has grown disproportionately if they are sitting at top posts
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Credit delivery to borrowers, promotion &posting of officers depend on Gifts, not on merit
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Future of private banks is more secure than that of PSU banks.
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Danendra
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Agartala
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30th April 2009
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E & O.E.
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CAclubindia
