Bullock-Cart Banking

Bank workers were conspicuous by their activism during the general strike last Thursday. A union spokesperson took it upon himself to explain that in areas where manual work was equally efficient, computers should not be allowed. On the same day, newspapers carried reports on HSBC announcing its plans to become a global online bank, while HDFC Bank announced yet another tie-up for a payment gateway. The contrast in attitudes between the public sector banks on the one hand and the foreign and new private banks on the other could scarcely be more graphic.

The fact of the matter is that the Internet is ushering in a revolution in banking. It is now commonplace for account holders with the foreign and new private banks to be able to operate their accounts from automated teller machines (or ATMs) all over the country. Inter-connectivity between branches is run-of-the-mill. Telephone and Net banking have not only been a potent force for expanding the reach of these banks, but they have done so at a fraction of the cost required to set up a branch network. Technology is reshaping what banking is all about. Banks sit on mountains of data about their clients, data which can be mined with great profit for focused advertising and marketing efforts, data which can be used to sell a host of products and services.

 

And the pace of change is extremely rapid. For instance, while the Reserve Bank is yet to formally allow universal banking, ICICI describes itself as a virtual universal bank. Using the worldwide web as its medium, a bank can leverage its brand and the trust associated with its name to sell a large variety of financial products. ICICI, for example, has used its presence in banking, broking and the depository business to offer seamless online trading in stocks. These banks have decided long ago to eschew high cost branch banking, while at the same time reaching out to provide convenience banking at the depositor's home.

In sharp contrast, the public sector banks are yet to realise the force of this change. To be sure, they are slowly but surely linking up their branches and making incremental changes in their working hours. But the point is that what is happening in the banking sector is not incremental change but a revolution. The first movers in this revolution will get the cream of the high net worth depositors, while large corporates too will realise the advantages offered by online banking. In this environment, the PSU banks are as incongruous as bullock carts in a modern city. Fitting the cart with rubber wheels scarcely helps.

To be fair, it isn't entirely the fault of the PSU banks. Several of their chief executives would dearly love to be freed of their public sector tag so that they can go ahead with change. Consider the formidable barriers which PSU banks have to face _ an unviable rural branch network, social commitments, political interference, militant unions, and most importantly, a bureaucratic culture that discourages entrepreneurial talent. Until the government relinquishes control, these banks will plod along, reducing their NPAs a little, improving their bottomlines a bit, but not taking the crucial leaps into the future. And the weak banks will remain a festering sore in the country's financial system.