on Feb 25, 2021)Mumbai: The Centre on Wednesday announced that it has lifted the embargo on private sector banks for the conduct of government-related banking transactions, such as taxes and other revenue payment facilities, pension payments, and small savings schemes.
Although a few big lenders like ICICI Bank,
and Axis Bank already get a share of the government business, the Centre saw this as a sign that they would get more. Shares of private banks gained sharply following this announcement. HDFC Bank gained 5%, Axis Bank rose 4.6%, and 4.4%.
“This step is expected to further enhance customer convenience, spur competition and higher efficiency in the standards of customer services. Private sector banks will now be equal partners in development of the Indian economy and in furthering the social sector initiatives of the government,” the Centre said.
It added that there is now no bar on the RBI for authorisation of private sector banks (in addition to public sector banks) for government business, including government agency business. Speaking to TOI, a senior banker said that the main revenue was the fee-based business from the government.
Bank unions pointed out that private banks are susceptible to failure. Incidentally, last year the Maharashtra government decided to shift all its deposits to public sector banks from private banks after the Yes Bank collapse. “Does it mean that in the eventuality of its (private bank’s) collapse, government will come to their rescue or will insure the amount over and above Rs 5 lakh which the Deposit Insurance and Credit Guarantee Corporation (DICGC) guarantees?” asked Devidas Tuljapurkar, general secretary, Maharashtra State Bank Employees Federation.
