State Bank of India’s (SBI) depressing fourth quarter performance -18.5 % decline in net profit to Rs.3,299 crore down from Rs.4,050 crore a year ago – has been roundly slammed. Not just by the stock market where its share price fell sharply, but also in newspaper editorials!
Much of the criticism is, doubtless, warranted. Almost all parameters are worse than earlier - net interest margins are lower, NPAs higher, there is a fresh slippage of Rs.5,868 crore in the last quarter and the quantum of restructured assets is up almost four-fold at R8,669 crore up from R2,838 crore in Q3 FY13.
But the unkindest cut of all is the rather ill-informed comparison of SBI, along with other public sector banks, with new private sector banks. One business daily opines the latter ‘seem to be unaffected by the current economic downturn.’ Prima facie that would indeed appear so.But to compare public and new private sector banks in a vacuum is like comparing apples and oranges.
The ills of the public sector banks, including SBI, can be traced in large part to their parentage. In particular, to the mandate from government to continue lending, especially to tricky infrastructure projects, in the immediate aftermath of the 2008 crisis when most new private sector banks, wanting to protect profits, turned conservative.
Unfortunately, PSBs woes did not end there. After being asked to lend aggressively, when the loans turned problematic, as was inevitable, public sector banks were cajoled into first, giving borrowers a longer rope than warranted and then allowing generous re-structuring programmes. New private sector banks, in contrast, did not have to contend with any of these extraneous pressures. Compare the relative ease with which ICCI Bank was able to offload its entire Rs 430 crore exposure to the beleaguered Kingfisher Airlines to Srei Infrastructure Finance even as SBI struggled with the debt-laden airline.
This is not to hold a blind brief for public sector banks. Admittedly, they are often lethargic and function more like bureaucracies than like commercial ventures. But the very fact that many of the top-rung at new private sector banks cut their teeth in these very same PSBs that are now being condemned should give lie to the naïve belief that the latter are inherently ‘unbankable’ as one business daily scathingly put it.
The truth is parentage makes a big difference. Set PSBs free, let them shake off the shackles of an interfering finance ministry and watch the difference!
