Delivering the Karnataka Bank Founder's Day Lecture here 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, and advised that “small business” was the way forward.
Ms. Thorat said that data on market share, growth of deposits and advances, and the average GDP figures over the last 15 years suggested that old private banks had functioned by and large in regions of the country where the growth had been higher than the national average. This favourable environment meant that as long as the old private banks catered to their niche segments in their traditional areas while ensuring steady growth through investing in technology and people, they were able to grow at a fairly healthy pace even though they lost market share to the aggressive growth of the private sector.
This data led to the conclusion that old private sector banks – which had been started between 1915 and 1930 – were on par with public sector banks in terms of profitability, while the new private sector banks (started after 1993) did much better. This was mainly because of higher cost of funds even though in terms of efficiency, the old private sector banks may actually be better than the newer ones.
She said that the “rather simplistic analysis” had implications for going forward. She suggested that the old private banks should increase their customers cautiously. The old banks must take advantage of their knowledge of the region and the business to increase outreach and coverage in their areas.
“More inclusive banking will be good business while keeping concentration risk low,” she said, adding that the banks should also branch out into regions of the country which showed good potential for growth.
The board of directors of the banks must always be conscious of the competition, the areas of vulnerabilities and work together with the staff to steer the bank “in a manner that the founders would be proud of”. She said that the slogan to go forward could be “small business can be good business”.
Chairman of the bank Ananthakrishna said Karnataka Bank had been supporting education by providing loans to financially weaker sections of society. He said that earlier, for higher education, people of Mangalore had to go Madras to pursue degrees in law or medicine.
Therefore, a group of people came together to form the Dakshina Kannada Dravida Brahmana Sangha, which then started the bank to finance education of underprivileged and financially weaker sections of society.
