Public sector banks (PCBs) had better pull up their socks sooner than later to take on their increasingly efficient private sector counterparts
MUMBAI: Public sector banks (PCBs) had better pull up their socks sooner than later to take on their increasingly efficient private sector counterparts, says a report from a global consulting firm.
After years of slowing down recruitment, state-run bank face the grim possibility of being understaffed and as a result, losing market share, according to a report released here on Thursday by Boston Consulting Group.
The report, on value creation in banking, states the compounded annual growth rate of employee in state-run banks between 2004 and 2007 is negative at 1% while assets growth was 17%.
“While these banks has grown their assets, branch presence and ventured into newer businesses, the employee growth was negative. From this year (FY09) onwards, state-run banks need to add 60,000-70,000 employees every year otherwise they will lose market share,” says Saurabh Tripathi, partner and director, BCG.
In the report, BCG says PSB’s at the end of 2007 had two-thirds of the total assets of the Indian financial services industry, but accounted for only one-third of the market capitalisation. Market capitalisation is the total number of outstanding shares of a listed company multiplied by its share price.
P Harshavardhan, partner and director at BCG, also points out the declining share of PSB’s in the total profits of the industry. “While nationalised banks’ share of profits fell from 42% in 2002 to 38% in 2007, the share of SBI and its associate banks declined to 18% from 29% in the same period,” says Harshavardhan. On the other hand, the share of new private banks like Axis Bank and Kotak Mahindra, grew from 7% to 15%.
The total shareholder returns (TSR) of new private sector banks between 2003 and 2008 also rose 56%, whereas that of PSB’s grew only 42%. But, in 2007-08, the state-run banks have shown a better TSR growth rate than the private sector banks because of renewed market interest in them, adds Harshavardhan.
TSR is a measure of value creation and is calculated with the dividend yield and the change in share price.
In the 2003-2008 period, Axis Bank comes out on top in the value creators list, with a TSR of 83%, followed by Kotak Bank with 82%. However, in 2007-2008, Indian Bank leads the pack with a TSR of 81%.
India banks recorded the highest TSR in 2007 among the BRIC (Brazil, Russia, India and China) economies. India clocked a TSR of 88%, way above Brazil’s 39%, China’s 46% and Russia’s 12%.
Saurabh Tripathi says that PSB’s believe that they can achieve their growth potential with their existing employee strength. He adds, “While between 2004 and 2007, PSB’s saw an asset growth of 17%, their muster roll registered a decline of 1%.”
New private banks grew their assets by 38% and employed 43% more people in the same time span.
The average growth in net profit for Indian PSB’s for the fiscal 2007-’08 has been 31.2%, in comparison to 39% for the private sector banks.
Is divestment of government stake essential to PSB’s achieving their potential? “No, PSB’s can continue to create value without dilution of government control,” says Tripathi.
With NW18
g_seetharaman@dnaindia.net
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