Why not Privatisation of Banks?

Market Share of Public Sector banks and Foreign Banks has been contracting from 78% and 5.7% to 69% and 4%, respectively as Private Banks gain. 

Private sector banks are also found to be more efficient in deposit mobilization (utilization of available funds) as it stands above 85% in FY17. New/ Incremental deposit mobilization is also close to 80% for private sector banks while it stands at just 35% for the overall banking sector.

A six year trend shows that growth in deposit is primarily driven by the Private Banks. These banks accounted for 23% in overall deposit in FY17 and have recorded a strong growth of 19.5%, the same year. This indicates that this group has been gaining public trust and expanding its geographical coverage of branches in remote areas. 

Moreover, private corporates and financial institutes are the major source of deposit for the private banks, especially for the CASA category. 

 Private sector banks are also efficient in deposit mobilization (utilization of available funds) as it stands above 85% in FY17. PSBs, having to deal with the SMA/ NPA situation are recording this at just 70%, at the same time. New/ Incremental deposit mobilization is also close to 80% for private sector banks while it stands at 35% for the overall banking sector. 

Public sector banks, as expected, on the other hand, are having weaker deposit mobility of just 12%. As this group (PSB) has a significant share in India's overall deposits (70% share) - lower deposit mobility indicates a higher cost of holding money. This means that as interest rates go up, PSB may have to provision for higher interest servicing obligation while being stuck with unproductive cash on the balance sheet. An impact on the health of the cash flows cannot be therefore ruled out.

Private banks’ share in credit by banking sector has increased from mere ~1.5% in 1994 to now 1/3rd of total banking credit over last two and half decade. Despite PSU banks having twice the advances of that of their private peers, they enjoy just 1/3rd valuations of that of private banks!

The market capitalisation of PNB has dropped to 29,544.23 , much lower than Rs 35,719 crore infused by the government in the bank over the last three years.

Allahabad Bank's market capitalisation is Rs 4,224 crore. Ahead of the merger with Indian Bank, Allahabad Bank has approved a capital infusion of Rs 2,153 crore in the bank by the government. Notably, earlier this financial year, the government had infused about Rs 6,896 crore in the bank.

Union Bank's market capitalisation of Rs 12,151 crore is closer to the capital infusion Rs 11700 crore announced by the government this year while Canara Bank's m-cap was Rs 14,428.42 (Rs 6,500 crore capital infusion). 

The m-cap of Indian Bank stood at Rs 4,282.91 (Rs 2,500 crore), Central Bank Rs 8,735 crore (Rs 3,300 crore) and Indian Overseas Bank Rs 10,836.03 (Rs 3,800 crore).

Lower market value means that banks are not able to raise capital from the equity market to expand their business and have to rely on government support.

Now leaders opposing privatisation  cites Gita where Arjuna used to oppose advice given by his Guru Krishna and then Krishna used to explain why his advices were valid. 

This is the point which allows opponents of privatisation should note and try to respond all valid points satisfactorily raised by those who advocate privatisation .

It is right to say that Arjuna used to abide by and put into action advices of Lord  Krishna only when he could understand the meaning what Krishna wanted to convey. 

That is I have been saying since long that privatisation and absolute privatisation of public banks is undoubtedly risky. Similarly nationalisation of all private banks is healthy in principle but practically not. 

Leaders should enlighten on all aspects , all demerits and merits,  advantages and disadvantages, comforts and constraints in both type of Banks. They should say why all private banks should not be nationalised and why a few proposed privatisation of banks should be stopped. 

Merely abusing Modi or calling the government as dictator or mad or tag it with any ugly word is not going to serve any purpose. It only gives the message that political motive is behind all such strike and agitations. 

Bankers can resort to two day strike or indefinite strike. Important  is how you convince people of India and win their heart. Abusing retirees or working employees only because he or she post different view is not what is taught by Krishna in Gita. And more emphatically Arjuna also gave absolute regard and respect to Krishna while expressing his different view.