Growing market share of private banks means dwindling space for social banking?
Private Banks are shunning the burden of participating in govt schemes and thereby depriving a section of the population of opportunity to avail credit linked facilities.
Recently I came across a case of a woman entrepreneur who has been sanctioned a loan of Rs 10 lakhs under PMEGP. The loan was forwarded to the bank notified by her. It was a private sector bank, where she has been maintaining her current account for a long time. When the application was received by the branch she had a shock. The branch head categorically told her that they would not be able to support her as they do not promote the govt sector schemes. She was flabbergasted at the reply as she has been having a very long-standing relationship with the bank. Her only undoing was it is a Govt sponsored scheme loan which that bank avoids to participate.
She landed in a situation of nowhere to go as she was apprehensive of positive response from other banks as she is new to them through District Industries Centre offered her change of bank.
Market share of private sector banks is raising vis-a-vis public sector banks:
By and large, all govt sponsored schemes are expected to be delivered through Govt banks including RRBs. It is not out of place to say that Govt sponsored schemes are associated with Public sector banks and RRBs. Since they were the predominant players in the banking space for a long time, it was obvious that people tend to seek the loan facilities under Govt schemes from public sector banks.
However, the situation is changing very fast. The share of private banks in the banking space is raising. Recent ICRA report endorses it. As per their forecast, the market share of private sector banks in banking sector advances is expected to increase to ~38-40% by FY2020 from 19.9% as on March 31, 2014, and 27.5% as on March 31, 2017, respectively. The Icra report assumes an incremental market share of 80% for private banks and a credit growth of 7-9% for the entire banking sector during FY2018-FY2020. Private sector banks had an almost 100% share in the incremental bank credit in the twelve months upto June 30’17.
It is a concern and also an opportunity:
Raising market share of private sector banks is matter concern with respect to the implementation of govt sponsored credit linked schemes assuming that they will not alter their position with reference to their participation. However, it is also an opportunity if Govt and RBI come out with a new construct to engage them to assist the needy section of the society. Private banks are very agile and have focussed verticals for various activities. In the similar line, they may also bring in a new vertical to assist this segment of the population to get such facilities.
MUDRA –A laudable model to bring on board all the parties:
We should commend the govt for bringing in MUDRA model to expand the credit delivery to entrepreneurs at the grass root level. MUDRA is a well-conceived financial architecture. It has the capability to onboard all the banks and thereby accelerates the credit flow to all the sections of the society.
Access to formal banking support is declining for weaker section entrepreneurs:
Unfortunately, MUDRA and other credit-related Govt schemes have been facing difficulties to help the targeted population to make a living for themselves. One reason could be fast-expanding private banks and declining share of public sector banks in the country. The people who are having the current account relationship with Private banks are not getting any support to secure financing from the banks unless they have collaterals security or having a long history of business record.
Lax enforcement of regulations by RBI- A root cause:
Development banking to ensure that all the sections are having access to banking services is one of an important role for Reserve Bank of India. However, in recent time, RBI approach to associate with this cause is declining. They are more interested in issuing regulations and seek banks’ involvement. However, the role requires more active engagement with banks and that may also include seeking punitive actions on erring top management of Banks. Unless such rigorous enforcement comes into effect, the social banking will not get its due attention.
Universal Access to MUDRA is needed to bring down economic inequality:
Credit plays a very important role in the economic empowerment of skilled people in the weaker section of the society and also it facilitates bridging the connect with the rural population for goods and services from outside. Lack of access to such an important source will exacerbate the economic inequality already witnessing in the country.
As we know the public sector banks are undergoing merger and acquisition among themselves and that may lead to a decline in the network. Apart from that, the growth rate of business is already on the decline and the trend unlikely to reverse.
Private sector banks which are fast expanding their network, and if they continue to carry the aversion to this important national agenda, that will only be contributing to disenfranchising a significant section of the deserving population to access to govt supported schemes.
Govt may also explore subsuming all other Govt credit linked schemes within MUDRA to ensure effective oversight of implementation.
Social banking is important to mitigate economic hardship and creating access to opportunities to improve the livelihood for weaker section of the society. Govt should work along with RBI to create a universal access to MUDRA loans and other Govt Credit Linked Scheme through all banks irrespective of ownership structure and enforce the same on a sustainable basis.