'Small banks with limited capital have failed to establish'

RBI former Dy Governor speaks at Founders Day of K’taka Bank

Though the profit level of the old private sector banks is on par with the public sector banks it is not as high as the new private sector banks. With the old private sector banks facing  tough competition from the new private sector banks, there is a need for the old private sector banks to take a few remarkable steps for the survival, said Centre for Advanced Financial Research and Learning Director and former Deputy Governor of RBI Usha Thorat.

She was delivering a talk on the “Challenges and opportunities of the old private sector banks” at the Founder’s Day lecture organised by Karnataka Bank on its 88th year of establishment at Karnataka Bank Auditorium at the Head Office Building here on Saturday. Explaining the challenges faced by the old private sector banks, she said that the aggressive growth of the new private sector banks which have high market share compared to that of old private sector banks, is posing threat for the survival of the old private sector banks.

“For instance, in the last one decade seven old private sector banks were closed down and among the 12 new private sector banks that were set up after 1993, only seven banks have survived. Among the survived banks it is important to note that the banks promoted by individuals witnessed a muted growth,” Thorat informed.

Stating the Reserve Bank India’s stance, she said the RBI believes that small banks with limited capital have failed to establish in India. Therefore a strong capital base is must for the old as well as new private sector banks for survival. Though the growth parameter of the old private sector banks has been quite good in last 15 years, it is not as good as the growth rate of the new private sector and public sector banks which have high rate of growth in terms of deposits and advances. The old private banks will have to maintain a very high growth rate compared to other banks for survival during this decade.

Survival tips

For the old private sector banks to hold up, Thorat said, the banks should focus on enhancing the coverage in their areas of operations to pool more customers by using various means to increase the scale without raising the cost and the risk. The old banks should also stress on their coverage regions which have witnessed high economic growth and they should not get tempted into very sensitive sectors which would pose risk in the long run. An attempt should be made to reach their service to those part of the country which has potentiality for growth but where the banking service is not so developed, she insisted.

Further, she added that proper planning and execution of thoughts, a competitive management, qualitative staff can boost the banks to stand steady in the competitive sector. She also called upon the small banks to remain small as she said “Small business can be good business.”

Taking note of her advise, Karnataka Bank Chairman Ananthakrishna said that their bank would remain as the private sector bank for next 100 and more years as they believe small is beautiful.

Meanhile, Usha Thorat also launched two new products of Karnataka Bank, the gift card and the travel card.

Karnataka Bank Managing Director P Jayarama Bhat was present.