Clearly the banks have their biggest exposure in the infrastructure sector—power, roads and telecom. It has hovered at more than 15 per cent of their corporate credit loan book often, irrespective of the size of business of the banks. This is most curious as one would have expected the boards of these banks to have taken decisions on a prudent level of exposure that was commensurate with their level of business. Using such a yardstick, one would have discovered varying levels of exposure to the infrastructure sector but no such difference is visible. Instead the monotonic level of exposure shows how little the effort must have been by the boards to furrow an independent path. They felt safe as these loans were offered as part of consortium lending, which makes it abundantly clear why any argument against their merger on the basis of their business operations, makes no sense. Other than infra, the big exposure in the loan books of all these banks is to the iron and steel, textile, construction and food-processing sectors. There is hardly any regional variation, except that Andhra Bank lends big time to rice mills and Canara Bank to gems and jewellery. The level of uniformity is dismaying.
Just as the banks have lent to the infrastructure sector big time, they have gone to the other extreme to almost deny loans to the services sector. Except for Indian Bank, which has a fat loan book for the trade sector, the reticence is visible across all of them. Again, as the banks have a large portfolio of lending to non-banking financial companies, which in turn lend to the services sector, it is evident that the needs of the latter are being met, but at a higher cost than the cost of money for the manufacturing sector. Instead, if the smaller banks had developed the ability to parse through the loan applications of services sector clients, they would have made much better use of capital. Since the level of productivity in most segments of the manufacturing sector in the Indian economy is lower than that of the services sector, the misallocation of capital by the public sector banks is clearly massive. The inability of these lenders is the reason why the smaller banks have loads of Casa (current and savings account) deposits and nowhere to lend.