Private sector banks told to leverage small businesses

Delivering the Karnataka Bank Founder's Day Lecture in Mangalore on Saturday, former deputy governor of the Reserve Bank of India Usha Thorat presented a ''simplistic analysis'' of the performance of old private sector banks in India, and outlined strategies for their growth, saying the way forward was through leveraging of small businesses.

According to Thorat, market share data, pattern of deposits growth and advances, and the average GDP figures over the last 15 years showed that old private banks tended to operate largely in regions of the country where the growth exceeded the national average.

This meant that as long as the old private banks continued to serve their niche segments in their traditional areas even as they experienced steady growth through investments in technology and people, they were able to clock a fairly healthy pace of growth even though they lost market share to the aggressive growth of the private sector.

The data showed that old private sector banks established between 1915 and 1930 – compared favourably with public sector banks on considerations of profitability, while the new private sector banks (started after 1993) did much better.

This was largely due to higher cost of funds even though in terms of efficiency, the old private sector banks might actually be better performers than the newer ones.

She added that the ''rather simplistic analysis'' had implications for the further growth of banks and suggested that the old private banks should increase their customers cautiously. She said the old banks must take advantage of their knowledge of the region and the business to increase their outreach and coverage.