Sunday, October 11, 2009

Public Sector Banks score over Private Banks

Bank Nationalisation
There used to be a time, long long ago, say 40 years ago when except for one major bank, all the banks in India were in the hands of private groups. The State Bank of India was the only exception. Thereafter, in 1969, all the major banks, 14 to be exact, were nationalised at one stroke. This more or less wiped out the presence of private ownership in the banking sector. Initially, every one, except the poorest of the poor and the Socialist politicians , criticized bank nationalisation. There were doomsday predictions of politicians distributing loans to their vote banks with abandon, bank staff adopting the Govt. departments' notorious less-work-for-more-pay culture, wildcat strikes patronised by the irresponsible Workers' Unions, inefficient and inadequate service to the depositors etc. etc. Of course, the newly-nationalised banks functioned initially in the way that these pessimistic predictions were proving to be right. But to look at the picture 40 years later i.e. today it is a very different impression one gets.

Public Sector Banks
Today in 2009, the Public Sector Banks present a picture of stability. They have expanded their reach vastly and serve every nook and corner of this huge country. In the days prior to Bank Nationalisation, the Banks operated mostly in the urban areas and some well-connected rural areas. A very large part of the country was left out to be at the mercy of the money-lenders and Chit-fund operators. The initial fears of irresponsible use of the depositors' money by the Public Sector Banks to feed the vote-banks soon vanished. The work culture too is acceptably efficient. The staff of the PSU Banks still goes on strike once in a few years, but that is some thing one can live with. Contrary to earlier fears, there have been no frequent strikes.

Trustworthy and Depositor-friendly
Now , talking about the positive aspects, the Public Sector Banks enjoy the trust of the people. This is the biggest plus point any Bank can be proud of. This trust was more than evident when a year ago the banking system in different parts of the world collapsed and people were afraid to put money in the Private Sector Banks. In fact, the depositors started closing their accounts in and withdrawing money from the biggest Private Bank in India. But, not a paisa was withdrawn by any one from the PSU banks, since there was no fear of the Banks collapsing. The PSU Banks are depositor-friendly in many ways that the Private Banks are not. The minimum balance one has to maintain in a Savings account in HDFC Bank is Rs.10000.- If you do not have this balance , they charge you a hefty penalty ( say Rs.500-Rs.750.- per quarter) . The Standard Chartered Bank is far worse; they want you to maintain a Savings Bank account balance of Rs.25000.- The penalty they levy in case of the balance falling below this huge amount is heftier than what the HDFC Bank levies. Now contrast this with the PSU Banks. The minimum balance one has to maintain in a Savings Bank account is just Rs.1000.- All the PSU Banks give you a Pass Book for Savings Account which can be easily preserved. The Private banks send you a quarterly statement which can easily get lost unless you take care to file all the quarterly statements in a box file. I am convinced that the biggest PSU Bank State Bank of India has been more innovative in introducing new financial products than any of the Private Banks. SBI has more ATMS-s. They have more branches. When you go to a SBI branch to open a Fixed Deposit account, all that you have to do is to fill up a small pay-in slip ( if you have a savings account in the same branch) and within 20 minutes, you could walk out with the computerised Fixed Deposit Receipt in your hands. This is my personal experience. I have not seen such efficiency in any Private Bank. You have to fill in a large form and then they tell you that they will send you the FD receipt by post or through courier.

Private Banks serve only the Elites
Though I have been a long-time admirer of the Private Sector in several fields, I think that in the Banking Sector, the Public Sector scores heavily over their Private counterparts. Though in the recent years many private banks such as HDFC Bank, ICICI Bank etc. have come into being (besides the foreign banks such as Standard Chartered ) , they are being seen as shunning the middle class depositor and preferring only the HNI (high net worth individuals). They price their services , probably deliberately, to scare away the run-of-the-mill depositors. They want only the cream of the society to come to their doors. In the long run, the loss will be that of these private banks, not that of the average Joe.

The Banking Sector in India has demonstrated that the PSU Banks are closer to the common man and they understand his banking needs better than the Private Banks. The Private Sector Banks, willingly or unknowingly, are positioning themselves away from the mainstream, edged out to serve mainly the elitist minority.


amitesh said...

Having worked in SBI as a summer intern i have personally seen the bank's functioning.The condition has improved but still there is a lot to be desired.I hope in the near future the PSU banks can compete with the pvt. banks when it comes to providing quality service.

ICICI Bank said...

Dear Neel,

We are taking note of your concerns and are sorry to know you how feel. ICICI Bank has been at the forefront of India's development since 1955 and is India's leading Private sector bank. Maintaining good corporate governance practices and securing customer trust is important to us. Please write to us with your specific issues and contact details at We'll contact you and work to address your issue.

Regards, .
ICICI Customer Service Team.

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