What has happened?
- Finance Minister Nirmala Sitharaman announced on Wednesday, February 24,
- That the Centre has lifted embargo on grant of government businesses to private banks.
- Taking to Twitter, FM Sitharaman further stated that all banks can now be “equal partners in development of the Indian economy.”
Does it mean, no private banks engaged with govt till now?
- In an official release, the finance ministry said that only a few private sector lenders were allowed to conduct
- government-related banking transactions,
- Like payment of taxes and other revenues, pension payments and small savings.
- The government’s decision on Wednesday will allow all private sector banks to carry out these operations.
- Jan dhan account in pvt. Banks-
- Axis Bank Ltd.
- Dhanalaxmi Bank Ltd.
- Federal Bank Ltd.
- HDFC Bank Ltd.
- ICICI Bank Ltd.
- IndusInd Bank Ltd.
- ING Vysya Bank Ltd.
- Karnataka Bank Ltd.
- Kotak Mahindra Bank Ltd.
- YES Bank Ltd.
- “This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services,” the release stated.
- It said that the decision will make private banks “equal partners in development of the Indian economy”.
Help social sectors through latest technologies
- Private sector banks are at the forefront of imbibing and implementing the latest technology in the banking sector,
- Now the government will be able to leverage their innovations to further its social sector initiatives.
- Private lenders will now have to get authorised by the Reserve Bank of India,
- Before they can begin operating in government-related transactions.
- Uday Kotak, Chief Executive Officer of Kotak Mahindra Bank welcomed the move.
- “It will enable the banking sector to serve customers better,” he said. “Private and public sector must both work towards sustainable development of India.”
Cost of deposit to rise
- The government is set to earn more from its deposits as it enters into business with a larger set of private banks that can offer higher interest rates.
- At the same time, public sector banks (PSBs) may be forced to shell out more than they historically have for government deposits.
- Public sector banks used to get away with a slightly lower rate because they have a larger savings account and rural fund base,
- Whereas the private banks are very hungry for deposits.
- So, they might create an enhanced interest rate regime to garner these funds because there has to be transparency for government funds.
- Also experts say, there may have been an understanding between the government and private banks that in exchange for the embargo being lifted,
- Private banks will have to participate in social sector activities like PSBs.
Private banks participation till now
- A Nomura report said that while the top three private banks have been undertaking government agency business for the last 20 years,
- Axis Bank and ICICI Bank have managed to step ahead of HDFC Bank in obtaining authorisation for undertaking pension payments for the defence
- “Railways’ pension is a potential area which is still lying with SOE (state-owned) banks.
- Incidentally, in tax collections, HDFC Bank almost had a 15% market share as of FY19/20,” the report said.
Q) Which of the following is the potential impact of sale of Government securities by the Reserve Bank of India?
- Increase in liquidity in the market.
- Increase in interest rates.
- 1 only
- 2 only
- Both 1 & 2
- None of the above