Wednesday, February 27, 2013

New banking licenses contenders have a tall task ahead of them. The banking industry is anyway facing a human resource challenge as a number of employees are retiring every year. New banking license holders will have to compulsorily have 25% of their branches in unbanked rural areas. These new banks will have their task cut out in finding skilled employees to work in such branches. PSU banks, especially State Bank of India, Bank of Baroda and Punjab National Bank will be a major hunting ground for talent. These banks will consequently face attrition issues. Better compensation and more recognition will drive mid-level associates to these new banks. For lower level employees, hiring can happen from Tier 2 and 3 cities. We believe that setting up new branches and paying exorbitant salaries to employees will raise the cost to income ratio of these new banks significantly. It will also take a lot longer for these new branches to break even. Speculators have been piling on the stocks of the banking license hopefuls. But, long-term investors should consider the various operational issues and competition that these new banks will face.