If the CFOs of Tata Steel, Tata Motors, TCS, Indian Hotels came to Mr. Ratan Tata and said we want to set up a mutual fund and a life insurance company how do you think will he react?

Most probably he would say we have a mutual fund and a life insurance company so please do whatever you want through those companies, right?

However when SBI, Bank of Baroda, IDBI bank, Union Bank, Canara bank, went to the finance ministry and said ‘we want to set up a life insurance company and a mutual fund’ what did the FM say?

Yes boys, go and play!

How these companies are called ‘private sector insurance companies’ beats me, but that is another post!

So now we have at least 7-8 life insurance companies, 7-8 mutual funds belonging to the Government of India – and perhaps competing with each other in the market. Does it make any sense? No.

It does provide employment to many people – employees, ad agencies, rents to landlords, recruitment agencies, business for Jet and Kingfisher airlines – but is it adding any value to the country or to any of the shareholders?


Idbi bank for example is competing with the new gen banks and has to sell tons of insurance and mutual funds for the JVs to make money. Same with Canara, Union, …and the others.

If you speak to the bank, the bank employees are not too happy with the JVs! In one JV the person deputed is just waiting to come back to the parent organisation. In fact he was cribbing about how there was a difference between the 2 organisations in the reimbursement of medical expenses. Yuck. Not at that level at least.

Amazing how things come to this stage! If I had the powers, I would merge all the mutual funds into UTI and all the life insurance companies into LIC. It may sound harsh, but drastic situations do call for drastic measures, do they not?

Will it happen? Of course not.

They could even merge all the banks and have just 2 or 3. This will mean there could be one bank for

– industrial loans

– personal banking

– agricultural loans

– for social lending – to rural poor and urban poor (and handle the NREGA payments)

then hold 26% stake in LIC and UTI. The balance could be sold to the public – and the current deficit closed. The Rupee will be at Rs. 28 to the US $. N murthy will be worried, that is all.

-at least we will not see 5 branches in each road having no business to do.

Will all this happen?

No. Too much vested interest in having so many banks with so many activities – if you cannot convince them, confuse them at work. Full swing. God Bless the Indian deficit.


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  1. I guess you simply forgot a basic FACT.

    >>>> ” but is it adding any value to the country or to any of the shareholders? ”

    Every politician today has stake in every government owned/run organization under several government schemes. Combining everything into one entity simply means less revenue (revenue here means black money and eventually less corruption). Having more companies means an excuse to state we increase jobs (even if they do not add any value)…

    Bottom line, who cares for the country!!! They ONLY care for their “seat” and votes… 🙁

  2. There is a benefit to having multiple banks and that is competition. Because all these banks compete with each other
    1. They offer competitive rates/products
    2. Some form of customer service (not as good as pvt banks though)

    Lot of villages don’t have any pvt banks yet just nationalized banks. Imagine if there was no competition and a single nationalized bank having monopoly. It would be no different than a RTO office or Court. You will see agents sitting outside to open an account or get a loan :(. And poor people will have no options than to grease the agents and officers.

    I am glad there are multiple nationalized banks.

  3. @charbucks : PSU banks are competitive because they have privately held competitors. If all are PSU banks then there would be carteling and no competition. (I don’t mean carteling doesn’t happen in private sector. I just mean that if there are no private companies then carteling and customer apathy is very easy to do.)

  4. When the country spends signficant of its tax revenue on one time common wealth games, F1 circuit, subsidies & welfare bills, non-productive assets like legal establishments (courts) and investigations (CBI), used military equipment and scrap fighter planes and unwanted nuclear powerplants etc.., we do not get any bright picture.

    For country of our size, our population needs jobs rather than stake sale. The divestments and telecom licenses provided an opportunity to plug the deficiet and our govt miserably failed. I am convinced that our govt can ruin this opportunity even if it opens up in future. Also any divestment also would roll out lots of opportunities for babus and MBAs (investment bankers). So why blame diversified approach of insurance and mf business by PSUs.

  5. Subra the cancer is only growing but the Dr surgeon we have to try and do the surgery is shaky and old – Its time MMS calls it a day and pass the baton to less qualified but a more bold surgeon who can at least prolong the life of the patient by doing a botched up surgery.

  6. ya Subra thats what i meant…IMHO even before the pvt banks came, the service level of psu banks was ok not great but still better than a government office.

  7. charbucks – what service did you get from the bank to say they are ok? if you are just a savings bank account holder who withdraws money for monthly expenses, yes they are convenient. Calling it ‘better than a govt office’ means nothing.

    Psu banks NEVER compete – for anything. Your business, your FD,…nothing. They are profitable because the RBI protects them. They lend to Air India because RBI tells them to. They lend to Kingfisher ( SBI has more money at stake than Mallya!) …that is all. If 5 or 10 are shutdown, nobody will know or care.

  8. Two years back, one day went to Andhra Bank as usually. The normal cashier (in his 30’s) is on leave that day. So an old guy (in 50’s) was disbursing cash. Then find out the diff. Generally used to get cash within 5-10 mins. But this old guy still in his 70’s & 80’s banking days mood simply asked us to wait and disbursed cash after 25 mins. The new generation employees really changed due to competition of new pvt banks. The old stubborn guy’s attitude is still like that, as if customers has no other choice. If there are only 2-5 banks then the young cashier will too become like the old guy & the customers are the losers.

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