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IT alone won't take public sector banks far, say analysts

NetScribes / Radha Ganesan

Though investments in information technology will help public sector banks retain customers to a certain extent and improve profitability only in the long term, it won't really help them stave off competition, say analysts.

Many such banks have announced ambitious technology plans, claiming that it would boost business. State Bank of India plans to pump Rs 8 billion into infotech, Bank of Baroda Rs 2.5 billion and Corporation Bank Rs 1.25 billion.

Andhra Bank also recently announced its Rs 1 billion technology upgradation programme, to be implemented over the next two years. Besides, Bank of India and Canara Bank have initiated technology plans, to be carried out over the next two-three years.

"Investments in technology will definitely improve public sector banks' competitiveness vis-à-vis others, though only an extent. It will merely help such banks retain customers," said an analyst at equity research firm SG Asia Securities.

"IT spend will better banks' technology services and lower operational costs; also, profitability will rise in the next 5-10 years. In the short term, only the slowing growth in customer bases will be curbed though," said banking analyst at equity research firm Pranav Securities, Manish Karwa.

"To become competitive like their better private sector counterparts, employee training, better work culture and a customer-centric approach will have to be adopted by public sector banks," said the SG Asia Securities analyst.

"New age private banks have better IT and service culture. However, IT can only be a backbone for better competitiveness. Improving sales by adopting a customer-centric approach is critical for public sector banks," an analyst at investment banker JP Morgan Chase said.

Ironically, even the focus of the billions being poured into technology is not directed towards improving the service culture through customer orientation - which is what actually drives business in banking - the JP Morgan analyst added.

The current exodus of customers from public sector banks to the new private sector banks can be attributed largely to the poor customer service in the former, as spelt by slow speed in carrying out transactions, faulty processes, and inconvenience in dealing with the banks.

To take only one example, the customer of a private bank can withdraw cash within seconds from its ubiquitous ATMs or get his account status from Internet banking. By contrast, very few public sector banks offer these services; if they at all do so, such services are restricted to the metros.

Also, private sector bank customers are serviced better in the physical branches than their counterparts in public sector banks, which has been the primary cause driving customers towards the former type of bank.

"IT can only prevent the private sector from grabbing public sector's custom. In the current scenario, it is merely preventing the gap in the two sectors' products from widening further. IT isn't necessarily narrowing the gap," said banking analyst at broking firm Motilal Oswal Securites' Rajat Rajgharia.

A reason for public sector banks pulling out all the stops where investments in infotech are concerned, could be to meet rising demand, says Pranav Securites' Karwa. "But scaling up to private banks' levels is still a distant dream," he said.

It's still too early to speculate the impact of IT initiatives on public sector banks' bottomlines, says the SG Asia analyst. "However, public sector banks need to speed up implementation only on the completion of which would we able to comment," he added.

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