Future of Banking System: Tough days ahead for Govt banks in India!


As we all know that due to changes in the Banking sector, not just the merger of the weaker banks into a major one taking place but also the private ATM centres have come up indicating the growing privatisation in the banking sector.


The menace of Non-Performing Assets (NPA)s have brought down the profits of all government banks including the mighty SBI. As a result, over 325 branches of Allahabad bank, 520 branches in SBI group were closed already. Another 500 to 600 erstwhile branches of Dena, Corporation, Andhra Bank, Syndicate bank located mostly in metro and big cities are set to close down soon.

Paradoxically, the private banks on the other, such as HDFC, ICICI and Axis banks are on the path of progress expanding their networks for 3 years in metros and urban areas. The saga of NPA continued to refer its NPA clients to NCLT for a quick resolution.

We have seen very few buyers for the takeover of these Big-ticket NPAs running to hundreds of Crores. For example, Alok Industries Ltd with a huge loan portfolio of Rs.29,000 crore was taken over for Rs.5500 crore. Similarly, there were no takers for many big companies like Lanco Infratech Ltd, Moserbear, Samtel Color Ltd, Amar Remedies, likewise another 10 companies. So liquidation was proposed to sell available assets individually on a piecemeal basis. Even then 10% recovery is doubtful.

Ruchi Soya having loans of Rs.9,345 crore was taken over by Patanjali group for Rs.4350 crore only. So 60% hair cut for lenders. So many companies were taken over like this every year. There seems to be no ending for loan defaulters in Govt banks. Still, many of them continued to extend loans to these biggies without any collateral security or Corporate Guarantees.

Govt is infusing huge capital every to the extent of losses incurred by Govt Banks. This year it is more painful due to market collapse because of lockdown.

Now a new concept was proposed

The banking giant SBI last week announced that it has proposed to use his staff for door delivery service for high-value customers. This was revealed by its Chairman Rajneesh Kumar a few days ago on the day of his retirement. According to him, since the increase in the usage of mobile phones and subsequent encouragement of digital payment modules by the customers, the burden on the branches have considerably has come down. Hence, the ‘excess staff’ will be used for Door Delivery Service, an yet another way of earning source for the bank.

This service is no new concept which is already being implemented by certain banks in private sector. One can see bank counters at the premises of IT giants like Oracle India, Google, Cognizant and many other IT and Pharma companies rendering banking services to the employees and the company as well.

The future Banking expectations

Due to Covid 19 pandemic, people of the higher middle class and middle class are not coming to branch personally. So bank transactions are coming down drastically. If this trend continues Banks will have excess staff whom the banks will have no other option but to use them for marketing and door delivery banking service purposes.

If this trend continues further, even loan canvassing for banking services will also be done online through internet by next year as already there are exclusive portals for car loans and education loas and insurance services etc by private banks.

This would also impact the RBI clearance house which ban ban the clearence of cheques for Rs.10 lakh and above. All companies having a turnover of Rs. 10 Crore and above will be asked to use only Net banking by next year.

MSME borrowers and pensioners will be placed in a separate branch in all metros as already the Govt banks have declared that Banking Correspondents would be increased on the commission basis.

In view of these developments, RBI is contemplating to introduce Audit of Bank branch by another bank officers officially. This brings a seamless audit in banking.

Branches in top 20 metros are having around 63% of loans in entire industry. Last week RBI observed that 1% of bank branches were having loans of above Rs.500 crore are the major players in any bank account for 53.8% of loans. This needs to be diversified. RBI may all bank branches to canvass any amount of loan apart from Industrial Finance branch.

The disturbing feature is that on the whole the existing 51,,892 rural branches have extended advances worth Rs.9.01 lakh crore, over 41,474 semi urban branches have extended advances worth Rs.12.91 lakh crore only. Where as the advances extended by the 27,991 existing metro branches have crossed an whopping Rs.63 lakh crore. Hence, the focus will be on Rural and Semi urban branches during next three years.

Adding to this disturbing feature, there is huge increase of deposits in the top four private banks viz. HDFC, ICICI, Axis and Kotak Mahindra banks. Govt banks have to retain their depositors during the next three years, otherwise it leads to collapse only. Indeed, tough days are ahead for Govt Banks.