Brash New Indian Banks

I have many uncles who work in the banking sector in India. They work for the "old" public-sector banks, as opposed to the new private-sector banks like ICICI Bank and HSBC Bank. Whereas the new banks have computerized operations, online banking and spiffy infrastructure, most old public-sector banks are still mired in bureaucracy and are only slowly, painfully modernizing their operations. One of my uncles mentioned that it felt like he was on a bullock-cart watching the "new banks" whiz by on motorcycles and cars.

It's hard to imagine why any young professional would choose a public-sector bank over the new banks. ICICI Bank ATMs are ubiquitous - every city has one. In Mumbai, you can ask the cab-driver to take you to the nearest ICICI ATM and he'll do so.

But I'm not sure that the new brash banks are a wholly positive development. The last two times I have been to India, I have been surprised by the numerous advertisements of FM radio for "personal loans". New banks like ICICI Bank have led the expansion of this market-category. While commonplace in the USA, this is a radical development in India. Unlike the USA, India doesn't have a strong enforcement infrastructure for credit-ratings and loan-recovery. It is easier to default on a loan and disappear. India, traditionally has also had a strong savings ethic, which seems to be slowly disappearing - first came consumer-goods on installments, and now we have "personal loans". The result is a flood of easy money that must be partly responsible for the roughly 5% inflation and meteoric asset prices.

I worry that these new banks, in their eagerness to conquer market-share, have recklessly executed unstable monetary stategies. Rumor on the street this time in India was that India's federal bank (RBI) had to raise interest-rate on savings-deposits to prevent ICICI Bank from collapsing because ICICI Bank had too many bad loans.

Tailpiece:
My neighbor's nephew worked for HSBC Bank, another one of the new banks. The nephew was working late one night when the guard's gun accidentally went off and shot him in the stomach. He died shortly thereafter in the hospital. When I mentioned this to one of my aforementioned uncles - he pointed out that this would never happen in his public-sector bank which has safety precautions for exactly such a scenario. Once the bank's money is placed in the vault at the end of business hours, the guard's gun is also placed under lock and key - the rationale being that once the money is in the vault, the guard doesn't really need his gun. This is yet another case of the new banks having lost some of the wisdom of these older, more mature banks. I wonder if HSBC ever instituted an inquiry into this incident and came up with any safety measures?