Taking suo moto cognisance of The Indian Express report on vaulting loan write-offs in the public sector banks (PSBs), the Supreme Court on Tuesday directed the RBI to share with it the names of defaulters who owe more than Rs 500 crore and continue to lead a “lavish lifestyle”. The focus on declaring NPAs — mandated by the RBI — has led to the PSBs declaring sharply reduced profits in the latest round of quarterly earnings. But while those who fall in such a category might invite the most outrage, the truth about PSBs hits closer home. In the absence of long-pending structural reforms, the PSBs have more to contend with than mounting NPAs.
For one, rapid technological changes are sweeping the financial services sector. Infosys co-founder Nandan Nilekani says the financial sector is poised for its “WhatsApp moment”. This is represented by new applications such as Paytm, which has become the largest mobile wallet in the country within a few years, and handles greater transaction volumes than any other bank. The second key challenge for existing PSBs is from greater competition induced by the RBI in the shape of more banks and a more differentiated pattern of banking, which aims at widening and deepening financial inclusion. Historically, India has been conservative in introducing new banks. But that has changed in the past one year with the introduction of 23 new banks, including universal, payments, and small banks. Both these developments underscore the old dictum — survival of the fittest. But do the PSBs have the staff, the top- and middle-rung managers, to devise a counter-strategy?
