Private sector banks better watch out as the recent government move to lift embargo on grant of government business to them comes with strings attached.

They now run the risk of permission — for undertaking government business — being withdrawn if they are found to lag the performance of public sector banks (PSBs) in implementing social sector government initiatives through banks, the Finance Ministry has cautioned.

Put simply, the government, in consultation with the RBI, would from time to time review the performance of private sector banks on a matrix of various government initiatives and schemes.

“In case it is found that there is adverse performance by any private sector bank in the future, then the permission to the concerned bank to undertake government business could be potentially withdrawn after giving due opportunity to the bank to correct the imbalance,” said a source in Department of Financial Services (DFS).

This stance of DFS should be music to the ears of PSBs, which have time and again been complaining that private sector banks are keen only on profitable initiatives and were not willing to do heavy lifting when it came to government social schemes that are to be implemented through banks.

Ease of doing business

The Finance Ministry on Wednesday decided to lift an embargo on allocation of government business (including government agency business) to private sector banks. The objective of this move is to boost the ease of doing business and ease of living for the public, including retail customers, small and medium enterprises as also larger corporates with regard to their government-related banking transactions such as taxes and other revenue payment facilities and many other transactions.

This decision has been taken to ensure a level playing field to all public sector and private sector banks, enhancement of customer convenience, enabling innovation and latest technology in the banking sector, and spurring of competition for higher efficiency and increase in standards of customer service, ultimately leading to all-round value creation.

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