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Safe banks of India

Public Sector banks are back in favour, thanks to the global financial crisis that has seen some of the world’s iconic brands collapse and set off much distrust for private sector lenders, reports Kamayani Singh.

india Updated: Nov 10, 2008 01:05 IST
Kamayani Singh

Public Sector banks are back in favour, thanks to the global financial crisis that has seen some of the world’s iconic brands collapse and set off much distrust for private sector lenders.

Through the July-September quarter, many state-run banks registered robust growth in deposits, while private sector banks saw either a contraction or a deceleration. As the crisis in the US precipitated during this period, many people got jittery about private banks back home, amid unconfirmed reports that some of them could be in trouble.

ICICI Bank saw its deposits in the July-September period contract by Rs 11,000 crore, while new deposits at HDFC Bank in the same period totaled Rs 2,900 crore, down 70 per cent from a year ago. The two banks account for more than 60 per cent of retail private banking in the country.

Among their public sector counterparts, State Bank of India and Punjab National Bank — the top two — saw new deposits during the same quarter grow 68 per cent and 80 per cent respectively. That’s impressive compared to near-flat growth in new deposits for the entire banking sector, according to data available with the Reserve Bank of India.

Banking experts, however, said they expect the situation to correct. “The perception of private banks is not going to take a hit in the long run,” said Vaibhav Agarwal, an analyst at Angel Broking.

“People will continue to prefer private banks for their better products and services,” Agarwal added.

As India’s economy transformed rapidly over the past decade, consumers — especially the young and wealthier ones —often chose private sector banks that brought much ease and efficiency to banking that was hitherto dominated by the public sector.

ICICI Bank and HDFC Bank rose like phoenix, with the former emerging as the country's second largest — after SBI —- in less than a decade from its birth. According to RBI data, private banks accounted for 20.3 per cent of aggregate bank deposits, up from a nominal share in mid-1990s, when the government began liberalising the financial sector.

But the current crisis in the world financial market appears to have put a spanner.

“One can’t completely rely on private banks anymore,” said Preeti Dave, a 26-year-old interior decorator, who opened her first account with a State Bank last month.

Helping the comeback of the public sector banks is a slew of advertisements that have done well in grabbing the opportunity in the current crisis.

“These banks have always been trustworthy, but now they are emphasizing this fact,” said Sam Balsara, chairman of advertising firm Madison world. “They are looking to elicit an emotional reaction from the viewer.”

Take the case of Bank of India whose advertisement goes with a tagline harping on personal aspects of its relations with customers — “Relationships Beyond Banking — Rishton Ki jamapunji.” Union Bank has something similar: “Kyunki aapke sapne sirf aapke nahi hote — Good people to bank with.” For Punjab National Bank it’s “the name you can bank upon.”

The advertisements also have an “added element of glamour, which will help in drawing in younger crowds,” said Santosh Sood, a Delhi-based brand analyst.

Some banks are sprucing their interiors and introducing new facilities to attract customers, while others said new customers are coming their way even without any special effort.

“Our bank hasn’t made any special efforts to attract customers. (Still) they are coming to us,” said K.C. Chakrabarty, chairman and managing director of Punjab National bank.’

“The times are such that an average customer feels his money is safer with a public sector bank.”