ARE PRIVATE SECTOR BANKS MORE EFFICIENT THAN PUBLIC SECTOR BANKS

ARE PRIVATE SECTOR BANKS MORE EFFICIENT THAN PUBLIC SECTOR BANKS

It is a general perception in general public and shareholders that Private banks are more efficient than public sector banks because they analyze bank’s performance through some specific parameters such as Net profit of the bank, Gross NPA ratio , Net NPA ratio , Business per employee or Net profit per employee etc.etc. They see these figures and invest in these banks so in terms of market capitalization private sector banks are much bigger than public sector banks but there is an unseen story nobody has seen yet. Reason of Lesser NPA % in private banks is not that they are more efficient but it is that they avoid risky financing like Agri, SME and Corporate financing. Retail sector has more than 70% share in advances of private banks like Home Loans , car loans , personal loans etc, whereas public sector banks are bound to fulfill their social duty so they have to finance to everybody who comes to them with genuine proposal. SBI finance 8% to Agri sector , 35% to retail sector and 35 % to corporate sector, 14 % to SME segment and 8 % to other miscellaneous. Retail , corporate and SME NPA % in private and public sector banks don’t have a big variation, difference is just of share of retail or less risky sectors in total advances. If public sector banks were allowed to decide to which sector they want to give majority share of their advances then we might not have stockpile of NPAs. Most of the public infrastructure was financed by public sector banks and we had to pay a hefty price for it in terms of NPAs and public got its benefit whether it was highways or coal mines.

Another perspective is that HDFC Bank or ICICI Bank ‘s one employee has a duty to serve around 450 customers whereas SBI’s one employee has duty to serve around 1800 customers and Bank of Baroda’s one employee have duty to serve 1500 customers. Customers of private sector banks are majorly educated and tech efficient and majority of customers of public sector banks are not well educated and are not tech efficient.

Private Banks don’t have presence in rural areas, they have presence minutely in semi urban areas which they claim as their rural branches because they know that banking in rural areas is a business of loss but public sector banks do it happily as their social duty and it negatively affects the operating profit and net profit of public sector banks as a whole because public sector banks have more than 40% branches in rural and semi-urban areas.

Public sector banks are not against government and RBI rules and guidelines but we have been penalized more by undue government’s intervention. SBI Gross NPA is around is around 126000 crores and Net NPA is around 38000 crores whereas SBI has 252000 cores of reserves and 390000 crores of fixed and other assets (when they are valued at lowest way) same as other public sector banks. SBI’s business per employee is 24.5 crores is the highest in the banking industry and Bank of Baroda have 20.5 crores of Business per employee same as HDFC Bank but SBI’s net profit per employee is 1/3rd of HDFC Bank due to provisioning mainly for corporate and SME and standard accounts (standard accounts -RBI guidelines)

People who say that private bank’s pay well to their employee so have a look at the reality-Cost per employee of SBI is 22.09 Lakhs Whereas cost per employee of HDFC Bank is 11.39 Lakhs and cost per employee of ICICI Bank is 11.27 Lakhs but miscellaneous and operating expenses of private banks are much higher than public sector banks in terms of percentage. SBI had 82000 crores of operating profit but showed only 20410 crores of net profit due to provisioning this year while HDFC Bank had 42000 crores of operating profit and showed 31000 crores of net profit due to very lesser provisioning burden. For Last several years PSBs were directed to not show net profit and invest all operating profit into provisioning. PSBs did the same and showed loss and their share value plunged year by year and public as well as government said that PSBs are not efficient. Now the balance sheet has been cleared almost of PSBs now privatization is always unethical. Losses of privatization of PSBs:-Most of the rural branches will be closed within five years of privatization and cost of operating account in privatized banks will be so high that most of the customer will either have to close their account or their account will be closed by these banks after deducting all money as minimum balance charges. Financial exclusion will happen at large scale and it will be disastrous for nation. Around 25 Lakhs crores of assets will be given to corporates in mere 2 or 3 lakhs crores of share value and it will be a huge loss to the nation.