Reasons that lead to death of banks

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This time where the competition has risen to the peak and where one who has to walk with the pace of the world, almost every sector is facing crisis and a dire need to take big steps. Same is the condition with the banking sector. Banks die too, but why?

Technology crunch

Today when the technology has emerged as the sole reason of gluing almost every sector with their respective customer base, the banks need to walk hand in hand with technology as well. As it appears, the small banks are unable to meet the technological expectations of their customers and hence the user decline.

As already mentioned by the Reserve Bank of India, the NPAs (Non-Performing Assets) are very much piled up on the banks, especially the state-run banks and PSU banks. These NPAs prove to be the hurdle in the growth of banks and a point is reached where the small banks tend to reach out to the government for help. The NPAs make the banks stagger and also prove to be a reason for their demise.

Competition

With private banks springing up in the sector, the competition has become very tough, given that private entities are in any sector only for profit and hence invest quite much. State-run banks have the quite limited resource in this context and hence they often lose to the competition.

Imbalanced services and their charges

When the banks charge for their services inappropriately, they tend to push the users away. Since the technological blend comes with a price, banks look forward to settling that cost through their customers, but if that is imbalanced, the customers are repelled.

Most of all, these dying banks are merged or are shut down, merging leads to accumulation of even higher NPAs and the problem tends to continue, unless the parent bank is as large as SBI itself.