Profit Making PSUs
PSU companies make profits only if:
– they have a monopoly
– price is controlled or quantity is regulated
– the market is very unfair
– there is so much profit that all companies make profit.
PSU banks fall in the 4th category! The government owns about 25 banks – and it has no reason to be in banking. Even with 100% government ownership, the rural penetration is pathetic. ON an all India basis, less than 10% of the country’s population has some banking product. This is really sensational – also because they have NO PLANS FOR THE URBAN POOR.
So if a poor labourer wants to open an account – there is no way he/ she can! The banks are so profitable that they really could not care…but they will not go to rural India – nor will the government allow a few of the branches to be closed or merged.
Take the case of senior citizens – they get treated very shabbily in banks. I know senior citizens who have been sold NFOs – and most of them are still licking their wounds. Senior citizens find it a great challenge to get their TDS certificate (imagine this is still made branch wise, client wise – and normally outsourced to a CA). Why not a bank for Senior Citizens? No, there is no time for that….
I think I can make an argument for 100 new banks, but the Regulator boss ensures that its kids do not face any competition….and they can claim to be profitable….
Sambaran
Subra,
You say government has no reason to be in banking.
However, there is the security perception issue. I feel more confident about the security of my money in SBI than any other private bank.
It is not because SBI is good or efficient. It is because SBI has got the ‘government ka haath’ behind it. I know it is unjustified to bail out any bank’s mistake by tax-payers money. However government will surely bail out an SBI in case of trouble, but it may not bail out a private bank in trouble.
argo
What about GTB?
Nir Dhar
>>> PSU companies make profits only if:
What about Balmer Lawrie, Tide Water and Engineers India?
— Nir
Sreedhar
Subra, on a different note recently in an interview to ET Now Shankar Sharma said gone are the days when you buy stock if there is value and hold it for life!! You have to keep a target it seems. What happens to Warren Buffet or Graham’s principles? I know you would say don’t watch these business channels, but not easy not to give way to temptation 🙂