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New banks: On the go - Views on News from Equitymaster
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  • Sep 29, 2000

    New banks: On the go

    The Indian banking sector is witnessing a technology revolution. While the private sector banks have taken a lead by rapidly offering newer channels to the consumers, public sector banks are still lagging behind with operational inefficiencies.

    Public sector banks have the government as a majority shareholder. Absence of dynamic and proactive management, lack of autonomy for restructuring operations, overstaffing and unwieldy branch network are dampening their growth prospects.

    On the other hand with emphasis on service and technology, it is for the first time that private banks are challenging the foreign banks. These banks are making heavy use of technology to give good service on par with foreign banks but to a much wider audience. Branch size has been reduced considerably by using technology and having less manpower. Their technological edge and product innovation has seen them gaining market share from the slower, less efficient government banks. Also focus on the non-fund based income as a major source of revenue has enabled them to grow at a faster rate. As can be seen from the table HDFC Bank and ICICI Bank have comparatively better productivity ratios than the government banks due to their fast adaptation to technology change.

    Measure of performance
    Particulars HDFC
    SBI Corporation
    Bank of
    Branches (x) 111 81 9,050 648 2,520
    Employees/branch (x) 13.5 16.6 26.1 15.7 20.6
    Deposits/employee (Rs m) 42.0 73.4 8.3 14.0 9.2
    Deposits/branch (Rs m) 759.3 1,218.0 217.5 220.4 189.5
    Operating profit/employee (Rs m) 2.0 1.4 0.3 0.5 0.2

    Indian banks, traditionally just borrowers and lenders, have now started providing complete corporate and retail financial services to its customers. Technology drive has benefited the customers in terms of faster, improved, convenient banking services and variety of financial products to suit their requirements. ATMs, phone banking, net banking and mobile banking are changing trend in the sector. In plastic money segment, customers have also got a new option of debit cards against the earlier popular credit cards. Many banks have started capitalising on the recent capital market boom by providing IPO finance to the investors. Retail financing is the other area where the banks have started to concentrate. Thus private banks have virtually created an exit barrier by broadening their product range and effectively cross-selling them with the latest available technology.

    Key ratios
    Particulars HDFC
    SBI Corporation
    Bank of
    NPA level 0.8% 1.1% 6.4% 1.9% 8.6%
    CAR 12.2% 19.6% 11.5% 12.8% 10.6%
    Return on assets 1.0% 0.9% 0.8% 1.4% 0.3%
    Return on equity 16.0% 9.2% 16.9% 20.3% 6.9%
    Return on capital 4.1% 1.9% 1.6% 2.5% 0.5%

    The positive signs of improving banking scenario coupled with the thrusts made by most of the banks towards technology and e-commerce have been reflected in the share prices gains (HDFC Bank and ICICI Bank) in last one year. This was also led by their comparatively better financial performance compared to public sector banks. Cleaner loans and higher capital adequacy ratio (CAR) are allowing the private sector banks to grow their assets in a significant way.



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