Competition is ALWAYS good, or is it?

Well we have 25 psu banks and now a dozen private sector banks. We also have 40+ mutual funds, 40+ insurance companies.

Has this improved the service?

Has it reduced the costs?

Have you really benefited by this huge number of organizations in the BFSI space?

In 1969 Indira nationalized banks saying “the private banks lend only to a few people and run a concentrated book”. Now the NPA is a huge psu bank problem! In my head Axis bank and Icici are psu banks. Will someone please explain how they are private sector banks please? Salaries are like pvt sector, but these are banks which are run for the top 50 employees and top 50 borrowers. Small shareholders be damned.

Now the Finance Ministry has clarified that all the  deposits in all the banks will be guaranteed by the government. So there is almost an incentive to run banks aground. Yes Hdfc bank, Indusind bank, Kotak bank, have sharp and involved shareholders, but that is not true for the other banks.

But then there are things in modern banking, which are far more complex. Modern banking is a system that thrives on competition because these companies ARE SUPPOSED TO compete to provide the lowest cost financial services to the end user. Sadly that is not happening. The MIS-SELLING of inappropriate products like equity brokerage, expensive mutual funds, inappropriate insurance, …are the more visible tasks of a bank manager. The incredible decline in the cost of investment management and the rise of free online banking are great examples of competition driving down costs and benefiting all of us. We have to only understand that all this has been done by the technology part of the BFSI and not really by the banks themselves.  There is also the unpleasant reality in the world of private competitive banking – some banks will do anything and everything to make a higher profit. And this at times even involves wide scale fraudulent activity. This is not restricted to India as we saw in the Wells Fargo case! Wells was accused of creating millions of fraudulent accounts all in the name of profits! Do a proper audit, and you will find many skeletons in Indian bank’s portfolios!  We’re talking about millions of dollars in a nearly 19 trillion dollar economy and less than 1% of a workforce that engaged in criminal activity in the Wells Fargo case. However, it still happened!

Will we need another Trillion dollars of ‘bail-out’ or will we see more tears being shed by the market participants?