Sure they may seem inefficient, unprofessional and a lot of other things. We love to hate em just because of the whole customer disservice experience that we may have sometimes encountered and they epitomize all things bureaucratic and slow. However there is another view( my personal one of course!) borne out of years of working in a foreign bank all over India and lived overseas and now looking at a different dimension of banking viz microfinance in the Indian context. Some areas where I feel they score over their more priviledged distant cousins (viz foreign banks and private sector banks) are as follows:
1.Network and Coverage : They are there in locations where no foreign bank/pvt bank has dared to go. The branches albeit run down and lacking in infrastructure may not be the best but for most villagers living in far flung villages, a public sector bank is the only link with the formal banking /credit sector.
2.Low staff turnover : Ensures continuity in service and helps build a rapport. Their sleek distant cousins see shuffling and movement at the same rate as the famous London weather-sudden,erratic and ever happening
3.Low Charges & Fees: The sleek cousins charge you for everything : if you maintain less than minimum average balance , want remittances done or even want to close your account to avail of a better rate on your savings account post freeing up of the savings bank interest rates ( see link http://www.moneylife.in/article/hdfc-bank-to-charge-rs500-to-close-saving-bank-account/22069.html)
4.Mass Banking : Partly covered in points 1 & 3. The basic no frills set -up of the PSU banks combined with the comfort of being able to communicate in the local language/dailect make them less intimidating to approach for the common person. The sleeker distant cousins will not entertain the ‘non creamy’ layer of the population and even state so in no uncertain words.
5.Excellent training ground /knowledge of core operations : The size of operation (network,types of transactions,complexity,volumes,customer profiles)make the PSU’s an excellent training ground for enabling true understanding of the banking operations in an exhaustive manner. Banks like SBI have given the Indian banking industry excellent leaders. The erstwhile ANZ Grindlays Bank (now Standard Chartered) had a lot of former SBI officers in key positions. These officers were instrumental in creating a comprehensive set of operations manuals and robust processes that are typical to a bank like SBI.Every small detail was documented and instructions and more importantly the logic and accounting entries that made up that transaction were intricately described. Even after ANZ Grindlays was sold to Stan C, the managerial resource was much in demand and continues to be in top level positions in banks such as Yes Bank,ABN Amro, UBS,Axis,DBS to name a few Even now most of the PSU banks especially SBI have an intensive training program that ensures that the managerial cadre procures extensive experience across various segments.This approach is very different from the largely ‘specialized’ and technology driven approach adopted by the new foreign/private sector banks.The other more popular approach is to go and hire from PSU’s and get ready trained resources rather than investing in training and development in an intensive manner.
6.‘Controlled’ Robustness to withstand global shocks: Majority government holding makes these giants slower to respond to changes in general as well more conservative in business areas like treasury operations and other fee based businesses ( mainly ‘off balance sheet txns’).Concentration on the traditional core banking operations and a wide diversity of products/customer profiles and correspondent bank networks make these banks relatively more capable of withstanding volatility-as was seen during the recent sub prime meltdown.
7.Stable Leadership ( in some cases) despite bureaucratic policies: Most PSU bank CMD’s typically get only about two years to serve before retirement, thanks again to the govt response time /bureaucratic layers of hierarchy. That’s not too much time to make radical changes considering the dimensions involved.However PSU banks like Bank of Baroda ( in its new avatar) or for that matter even Union Bank or SBI ( during OP Bhat’s ) time are forces to reckon with and can give even the best and the sleekest banks a run for their money.
8.Contribution to microfinance : Connecting with the grassroots PSU banks actually are the connecting link for providing formal sources of credit to the poor. By actually writing loans on their books and spawning exclusive branches catering to Self Help Groups (SHG’s), banks like Indian Bank or Bank or Maharashtra actually bridge the gap for financial inclusion to some extent. Ofcourse a lot more needs to be done and can be done, but the fact is that the sleeker distant cousins are nowhere on the horizon on this one and seem to prefer the indirect way of investing in private microfinance companies (MFI’s). This model is very different compared to the SHG model. The saga that unfolded in the Indian micro finance space has caused a lot of turmoil in the banking sector as well and is likely to affect the NPA’s of affiliated banks in a significant way. For eg: SKS Microfinance the first and the largest Indian MFI to access capital markets opened the IPO with a price of Rs 985 .The price on Dec 30 was Rs 93.30 ( see appended link to view the graph of SKS Microfinance)http://www.moneycontrol.com/india/stockpricequote/finance-general/sks-microfinance/SM11.(More postings on this issue to follow)
So while there may be service delivery gaps, the fact remains that these institutions have survived through the years and continue to link the masses to mainstream banking solutions. What is needed is room for them to grow without being tied to the apron strings of the government machinery. Merit based leadership, reasonable tenure for CMD’s, freedom to make critical choices about products,personnel etc rather than being made vehicles of executing bureaucratic agendas are some factors that can help these time tested warriors to surge ahead.
On the other hand there is a need to involve the elite banking group comprising of the foreign/pvt banking sector such that they are able to actually participate in the financial inclusion process in an hands-on way rather than a statutory way. Branch licenses for growing the ‘skimming factory bigger’ require a revisit. Indian PSU banks get whipped because they actually have to work in the trenches and hence get reprimanded for the mistakes they make while the elite distant cousins enjoy the ringside view sitting in their plush offices and staying out the grassroots action.
By Raji Ajwani-Ramchandani
She is an Assistant Professor in the Finance Center of Excellence at SCMHRD,Pune,India.
She has over 14 years of work experience in the sectors of Banking,IT,Entertainment and Education and has worked with organizations like YES Bank and Time Warner Cable.
She is currently a Doctoral Candidate at the Symbiosis International University and is pursuing her PhD in the area of Microfinance.
Her academic and research interests lie in Banking, Microfinance and Sustainable Development Initiatives at the ‘Bottom of the Pyramid’.
For more articles by Raji Ajwani-Ramchandani follow www.aboutmicrofinance.