NAME- SMRUTI WADE

TYBMS B
6708
TOPIC-ANALYSIS OF
FINANCIAL STUDY BETWEEN
PRIVATE SECTOR AND
PUBLIC SECTOR BANKS
INTRODUCTION
Bank is defined in many ways by various authors in the book on economics and commerce .It
is very difficult to define a bank; because a bank performs multifarious functions . The
evolution of different types of banks ,each specializing in a particular field, gives emphasis
on each and every kind of bank. A general and comprehensive definition to cover all types of
banking institutions would be unscientific and probably impossible.Each type of bank should
have its own definition, explaining its specialized functions.

The common assumption is that increasing financial performance will lead to improved
functions and activities of the organizations. Generally there are there are three important The
banking sector is considered to be an important source of financing for most businesses.
factors to improve financial factors viz. the institution size, its asset management and the
operational efficiency. While there has been rapidly a growing literature on banking
efficiency , little attention has been paid so far to the efficiency of banks in developing
countries like India .The objective of the study is to analyze the financial data which are
selected for focusing on examining the relationship among the measures such as banks size,
operational efficiency, asset management, return on assets (ROA) and to discuss their impact
on banks performance focusing on examining the relationship among the measures such as
banks size, operational efficiency, asset management, return on assets (ROA) and to discuss
their impact on banks performance.
Objectives of the study
The study has been conducted with a variety of important objectives in mind. The
following provides us with the chief objectives that have tired to achieve through the
study. The extend to which these objectives have been met could judgedfrom the
conclusion and suggestions, which appear in the later of this study.
 To analyze the financial performance of the private sector and public sector
banks in India
 To analyze the variation in the impact of operational efficiency, asset
management and bank size on the financial performance of the private sector
and public sector banks in India
 To compare the performance of public and private banks of India.
 To find out trends in NPA Level.
 To suggest various measures for NPA management.
Literature review
A literature review provides an overview and a critical evaluation of a body of literature
relating to a research topic or a research problem. It analyzes a body of literature in order to
classify it by themes or categories, rather than simply discussing individual works one after
the other.

A literature review often forms a part of a larger research project such as within a thesis,or it
may be an independent written work, such as a synthesis written paper.

Purpose of literature review

A literature review situates our topic in relation to previous researchers and illuminates a spot
for our research . It accomplishes served goals-

 Provides background for using previous research.

 Shows we are familiar with previous relevant research.
 Evaluates the depth and breadth of the research with regards to our topics
 Determine relating questions or aspects of our topic in need of research.

SPATHIS and DOUMPOS (2000) investigated the effectiveness of greek banks based on
their assets size. They used a multi criteria methodology to classify green banks according to
the return and operational factors, and showed the differences of the banks profitability and
efficiency between small and large banks.

CHIEN HO and SONG ZHU (2004) showed that most precious studies concerning company
performance evaluation focus merely on operational effectiveness which might directly
influence the survival of a company.By using an innovative two-stage data envelopment
analysis model, the empirical result of the study is that a company with efficiency does not
always mean that it has a better effectiveness.

DUNCAN and ELLIOTT(2004) showed that all the financial performance measures viz.
Interest margin, return on assets and capital adequacy are positively correlated with customer
service quality scores.Generally the concept of efficiency can be regarded as the relationship
bw\etween outputs of a system and the corresponding inputs used in their production. Within
the financial efficiency literature, efficiency is treated as a relative measure which reflects the
deviation from maximum attainable output for a level of input.
B.Satish Kumar (2008), in his article on an evaluation of the financial performance of Indian
private sector banks wrote Private sector banks play an important role in development of
Indian economy. After liberalization the banking industry underwent major changes. The
economic reforms totally have changed the banking sector. RBI permitted new banks to be
started in the private sector as per the recommendation of Narashiman committee. The
Indian banking industry was dominated by public sector banks. But now the situations have
changed new generation banks with used of technology and professional management has
gained a reasonable position in the banking industry.
SURA(2004) stated that stable dividend policy is followed in India. The study indicated that
the major determinants of current dividend and the current earning. The study also gave
support to argument of information content of dividend in the context of dividend proceeds.
Hence , dividend can be used as a signalling device by the management of the banks.

Roma Mitra, Shankar Ravi (2008), A stable and efficient banking sector is an essential
precondition to incr.ease the economic level of a country. This paper tries to model and
evaluate the efficiency of 50 Indian banks. The Inefficiency can be analyzed and quantified
for every evaluated unit. The aim of this paper is to estimate and compare efficiency of the
banking sector in India. The analysis is supposed to verify or reject the hypothesis
whether the banking sector fulfils its intermediation function sufficiently to compete with the
global players.The results are insightful to the financial policy planner as it identifies priority
areas for different banks, which can improve the performance. This paper evaluates the
performance of Banking Sectors in India.
In our research the main source of information has been the questioannaire filled up
by the respondents as well as the internet. The internet , questionnaire served by us to
the respondents , website of parricular banks have been major source of information.
 Banking in india

Banking in india in the modern sense originated in the last decade of the 18th century.The
firsts banks were Bank of Hindustan (1770-1829) and The General Bank of India, established
1786 and since defunct.

The largest bank,and the oldest still in existence, is the state bank of india, of which
originated in the Bank of Calcutta in june 1806,which almost immediately became the Bank
of Bengal. This was one of the three presidency banks, the other two being the Bank of
Bombay and the Bank of Madras, all three were established under charters from the british
east india company. The three banks merged in 1921to form the Imperial Bank of India,
which upon india’s independence became the state in 1955. For many years the presidency
banks acted as quasi-central banks, as did their successors until the Reserve Bank of India
was established in 1935.

In 1969 the Indian government nationalized all the major banks that it did not already own
and these have remained under government ownership. They are run under a structure know
as “PROFIT MAKING PUBLIC SECTOR UNDERTAKING” (PSU) and are allowed to
compete and operate as commercial banks. The Indian banking sector is made up of four
types of banks,as well as the PSU’s and the state banks; they have been joined since the
1990s by the new private commercial banks and a number of foreign banks.

Banking in india was generally fairly in terms of supply,product range and reach- eventhough
the reach in rural India and to the poor still remains a challenge . The government has
developed initiatives to address this through the State Bank of India expanding its branch
network and through the National Bank for agriculture and rural development with things like
microfinance.

The last decade has seen many positive developments in the Indian banking sector. The
policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and
related government and financial sector regulatory entities, have made several notable efforts
to improve regulation in the sector. The sector now compares favourably with banking
sectors in the region on metrics like growth, profitability and non-performing assets (NPAs).
A few banks have established an outstanding track record of innovation, growth and value
creation. Banking in India was defined under Section 5(A) as "any company which
transacts banking, business" and the purpose of banking business defined under Section
5(B),"accepting deposits of money from public for the purpose of lending or investing,
repayable on demand through cheque/draft or otherwise". In the process of doing the above-
mentioned primary functions, they are also permitted to do other types of business referred to
as Utility Services for their customers (Banking Regulation Act, 1949). During Bruisers'
time, three Presidencies’ Banks were opened in Bengal (1809), Bombay (1840) and Madras
(1843) with powers to issue Notes. In the year 1921, due to banking crisis during First World
War, the three Presidency Banks merged to form Imperial Bank of India. In the year 1955,
after Independence, Imperial Bank of India was nationalized and renamed as State Bank of
India (SBI) with a primary mandate to go to rural areas by opening at least 400 branches
immediately. In the year 1957, the seven banks that were earlier catering to the rulers of
different areas or Hyderabad, Mysore, Travancore, became subsidiaries of SBI. In 1969 and
1980, Government of India nationalized 14 and 6 major banks respectively. After the merger
of New Bank of India with Punjab National Bank during the era of Financial Sector Reforms,
the number of PSBs became 27, which are under present study. This is reflected in their
market valuation. While the onus for this change lies mainly with bank managements, an
enabling policy and regulatory framework will also be critical to their success. Comparisons
of bank performance based on financial ratios suffer from the problem that financial ratios
might overstate performance because of inaccurate reporting of nonperforming
assets (NPAs) or because NPAs tend to be lower in the initial years in the case of newly
established banks. Stock prices may, however, capture performance more accurately because
markets, including ours, are reasonably efficient in incorporating information that may escape
financial statements. The means of both unadjusted and adjusted returns for each of the three
categories of banks were compared with returns to the Sensex – this gave the relative returns
for each category. Two important findings emerged. The comparisons of stock price
performance suggest that, in the perception of the market, PSBs as a category can withstand
competition from today’s private banks. This finding has important implications for policy. It
undermines the proposition that disinvestment, the mere dilution of government equity in
PSBs, cannot possibly contribute to any improvement in performance and that government
control must cease altogether. Consequent todisinvestment, PSBs have performed as well as
the Sensex and private sector banks. This suggests that listing on the exchanges, a profit
orientation, and a measure of autonomy can together produce improvement in performance
and that a transfer of ownership is not a pre-condition for such improvement all these were
aimed at generating income or employment to large number of rural masses comprising
weaker sections of society, artisans, and agriculturists and self-employed persons including
educated unemployed youth. In India, till the eighties, the banks operated in a protected
environment characterized by administered interest rates, high levels of pre-emption in the
form of reserve requirements and directed credit. In the process, strategies of certain banks,
especially Public Sector Banks, are aiming to divide customers into different segments on the
basis of the type of service they would like to render and also trying to segregate their
servicing counters in their respective branches to enable customer to have easy access to a
particular transaction. "Electronic Clearing", "Tele-Banking", etc. This paper explores an
empirical approach to the analysis of Non- Performing Assets (NPAs) of public and privates
banks in India. The NPAs are considered as an important parameter
History of banking in India
In ancient India there is evidence of loans from the vedic period (beginning 1750 BC). Later
in mourya dynasty , instrutment like adesha was in use, which was an order on a banker
desiring him to pay the money of the note to a third person, which corresponds to the
definition of bills of exchange as we understsand it today. During the Buddhist period , there
was considerable use of these instruments. Merchants in large towns gave letters of credit to
one another.

Post independence
The partition in India in 1947 adversely impacted the economies of Punjab and west bengal
paralysing banking activities for months. Indias independence marked the end of regime of
the laissez-faire for the Indian banking. The government of India intiated measures to play an
active rolr in economic life of the nation and the industrial policy resolution adopted by the
government in 1948 envisaged a mixed economy. This resulted into greater involvement of
the state in different segements of the economy including banking and finance.

The major steps to regulate banking included:

The reserve bank of India , indias central banking authority was established in april 1935, but
was nationalised on 1st January 1949 under the terms of the reserve bank of India of bank act.
1948.

In 1949, the banking regulation act was enacted which empowered the Reserve bank of India
to regulate , control, and inspect the banks in India.

The banking regulation act also provided that no new bank or branch of an existing bank
could be opened without a licence from the RBI and no two banks could have common
directors.

Nationalised in 1960s
Despite the provision ,control and regulations of the Reserve Bank of India except the State
Bank of India (SBI), continued to be owned and operated by the private persons. By the
1960s the Indian banking industry had become an important tool to facilitate the development
of the Indian economy. At the same time it has emerged as a large employer and a debate has
ensured about the nationalization of the banking industry. INDIRA GANDHI the then prime
minister of India expressed the intention of the government of India in the annual conference
of the All India Congress Meeting in a paper entitled “stray thoughts on bank
nationalization”. The meeting received the paper with enthusiasm.

Thereafter her move was swift and sudden. The government of India issued an ordiance and
nationlised the 14 largest commercial banks, with effect from the midnight of 19th july1969.
These banks contained 85 percent of banks deposit in the country. JAYAPRAKASH
NARAYAN , a national leader of India, described the step as a “a master stroke of political
sagacity”. Within two weeks of the issue of the ordiance , the parliament passed the banking
comapaniesbill and it received the presidential approval on august 1969

A second dose of nationalisation of 6 more commercial banks followed in 1980. The stated
reason for the nationalisation was to give the governance more control of credit delivery. The
government of India controlled around 91% of the banking business of India. Later on, in the
yearv1993, the government merged New Bank of India with Punjab National Bank. It was
the only merger in the nationalised banks from 20 to 19. After this until 1999s, the
nationalised banks grew at pace with 4%, closer to the average growth rate of the Indian
economy.

Liberalisation in the 1990s

In the early 1990s, the then government embarked on a policy of liberalization, licensing a
small number of privaye sector. These came to be known as New generation teach savvy
banks and included Global trust Bank which is later amalgated with the oriental bank of
commerce, UTI bank , ICICI Bank and HDFC Bank. This move along with the rapid growth
in the economy on India, revitalised the banking sector of banks,namely government banks,
private bank and foreign banks.

The next stage for the Indian banking sector has been set up with the proposed relaxation in
the norms for foreign direct investments where all foreign investors in banks maybe given
voting rights which could exceed the present cap of 10% at present .It has gone up to 74%
with some restrictions.

The new policy shook the banking sector in India completely, bankers till this time were
used to the 4-6-4 method of functioning. The new wave ushered in a modern outlook and tech
savvy methods of working for traditional banks. All this led to the retail boom in India.
People demanded more from their banks and received more.
HYPOTHESIS

HYPOTHESIS RELATING TO PRIVATE SECTOR BANKS IN INDIA

 There is no significant impacts of assets utilization on log of interest income in

private sector banks in India.
 There is no significant impact of operational efficiency on log of interest
income in private sector banks in India.
 There is no significant impact of operational efficiency on return on assets in
private sector banks in india
 There is no significant impact on log of assets size on return on assets in
private sector banks in india.
 To find the banking sector largely preferred by the customers.
 To find out the factors which influences the customers to chose a bank
 To study the problems faced by the customers in public as well as private
sector banks and also to compare between them.

HYPOTHESIS RELATING TO PUBLIC SECTOR BANKS IN INDIA

 There is no significant impact of assets utilization on log of interest income in

public sector banks in India.
 There is no significant impact of operational efficiency on log of interest
income in public sector banks in India.
 There is no significant impact on log of assets size on log of interest income in
public sector banks in India.

HYPOTHESIS RELATING TO BANKING INDUSTRY (TOGETHER PRIVATE AND

PUBLIC SECTOR) IN INDIA

 There is no significant impact of assets utilising on log of interest

income in banking industry in India.
 There is no significant impact of log of assets size on log of interest
income in banking industry in India.
 There is no significant impact of operational efficiency on log of
interest income in banking industry in India.
 There is no significant impact of assets utilization on return on assets
in banking industry in India.
 There is no significant impact of operational efficiency on return on
assets in banking industry in India.
 There is no significant impact of log of assets size on return on assets
in banking industry in India.
 There is no significant impact of return on deposit on log of interest
income in banking industry in India.
Limitations of the study
Due to the constraints of time and resources the study is likely to suffer from certain
limitations. Some of them are mentioned below so that the findings of the study are
understood in proper perspective.

The limitations of the study are-

 Some of the respondents of the survey were unwilling to share information.

 The research was conducted in short period of time so, therefore the sample size and
other parameters were selected accordingly so as to finish the work in given time
frame.
 The information given by respondents might be biased because some of them might
not be interested in providing correct information.
 The officials of the bank supported me alot but did not have sufficient time to clear
all points elaborately
 Since the sample unit is a semi urban place with the presence of private sector banks,
hence the result is likely to tilt a bit towards the public sector bank.
 The study is based on primary and secondary data like questionnaire, inteerent and
quality of the study depends on depends upon the accuracy, reliability, and quality of
secondary and primary data sources,
 In future researchers can consider inclusion of more banks to take up a study with
large sample units to explore out more accurate results.
Research methodology
Research is an art of science investigation. In other words research is a scientific and
systematic search for pertiment information on a specific topic. The logic behind taking
research methodology into considerations is that one can have knowledge regarding the
method and procedure adopted for achievement of objective of the project. With the adoption
of this others can also evaluate the results too.

The method adopted for studying the objective of the projects was surveying the bank
account holders. So keeping in view the nature of requirement of the study to collect all the
relevant information regarding the comparison of public sector banks and the private sector
banks direct personal interview method with the help of structured questionnaire was
adopted for collection of primary data.

Secondary data has been collected through the various magazines and newspaper and by
surfing on internet and also by visiting the websites of Indian Banking Association.
 DENA BANK
Headquartered in Mumbai, is owned by the Government of India, and as per latest data the
total branch network stands at 1,773 and plans to open 404 new branches in FY 2015-16 The
bank was founded in 1938 and the Indian government nationalized it in 1969. Dena Bank was
founded on 26 May 1938 by the family of Devkaran Nanjee under the name Devkaran
Nanjee Banking Company. It adopted its new name, Dena Bank (Devkaran Nanjee) when it
was incorporated as a public company in December 1939.

In July 1969 the Government of India nationalized Dena Bank, along with thirteen other
major banks. It is now a Public Sector bank constituted under the Banking Companies
(Acquisition & Transfer of Undertakings) Act, 1970. Under the provisions of the Banking
Regulations Act 1949, in addition to the business of banking, the Bank can undertake other
business as specified in Section 6 of the Banking Regulations Act, 1949.

Dena Bank was founded on May 26, 1938 by the family of Devkaran Nanjee under the name
Devkaran Nanjee Banking Company.
It became a Public Limited Company in December 1939 and later the name was changed to
Dena Bank.
In July 1969 Dena Bank along with 13 other major banks was nationalized and is now a
Public Sector Bank constituted under the Banking Companies (Acquisition & Transfer of
Undertakings) Act, 1970. Under the provisions of the Banking Regulations Act 1949, in
addition to the business of banking, the Bank can undertake other business as specified in
Section 6 of the Banking Regulations Act, 1949.
Dena Bank has been the first Bank to introduce – Minor Savings Scheme, Credit card in rural
India known as 'DENA KRISHI SAKH PATRA' (DKSP), Drive–in ATM counter of Juhu,
Mumbai, Smart card at selected branches in Mumbai and Customer rating system for rating
the Bank Services.
Milestones
 One among six Public Sector Banks selected by the World Bank for sanctioning a loan of
Rs 72.30 crore for augmentation of Tier–II Capital under Financial Sector Developmental
project in the year 1995
 One among the few Banks to receive the World Bank loan for technological up–gradation
and training
 Launched a Bond Issue of Rs 92.13 crore in November 1996
 Maiden Public Issue of Rs 180 crore in November 1996
 Introduced Tele banking facility of selected metropolitan centers
 In June 2011, Dena Bank on its 74th Foundation Day, launched its Mobile Banking and
Phone Banking facilities for its customers.
Products and Services
 Personal Banking– It offers various products and services such saving account, loans,
deposits, ATM facility, RTGS/NEFT facility, Internet banking, demat services, etc.
 Priority and SME– It also caters services to Priority and SME segment such as providing
various kinds of products to meet their various agricultural and business requirements.
 Corporate Finance – According to various business needs of corporates in the corporate
sector, its offers products and services as per their requirements.
 It also provides banking services to NRI Clients such as saving accounts, various deposit
schemes, remittance services, loans and overdraft facility, etc.

Dena Bank runs the risk of negative rating action if the government, its major owner with 58
per cent stake, does not infuse additional equity capital in 2015-16, according to India
Ratings. The rating agency affirmed Dena Bank's long-term issuer rating at 'IND AA-' with a
'stable' outlook. The affirmation factors in its status as a government bank and moderate
systemic importance with 1.2 per cent share each system assets and deposits in FY14.

The government is infusing Rs 140 crore in the bank in 2014-15 based on its past
performance. Dena's operating performance has been lagging its peers, which might limit the
government's contribution in the bank's large capital requirement (Rs 2,600 crore) under
Basel-III transition. According to India Ratings, the bank's capitalisation is modest, with an
estimated common equity Tier-I at 7.3 per cent as of December 2014. The bank can raise Rs
220 crore at current market capitalisation on dilution of government stake to 51 per cent. The
bank's limited ability to raise adequate capital in FY16 could substantially moderate its asset
growth prospects. This might reduce its market share in bank assets and its systemic
importance and could warrant a revision of the rating outlook.

The rating could result in a decline in bulk deposits, which means a sharp reduction in
operating costs. A strong improvement in asset quality could result in a rating upgrade of the
hybrid instruments, India ratings.
The bank's standalone credit profile factors in moderate franchise on both assets and liability
sides and high exposure to stressed sectors. Dena Bank's high exposure to troubled sectors is
likely to further increase the pressure on its asset quality.

While the bank's exposure to infrastructure declined marginally to 18.6 per cent of the total
loans in December 2014 from 20.2 per cent in FY13, its exposure is unchanged to metals (5.3
per cent) and textiles (5.5 per cent) sectors. The bank's total stressed assets (gross non-
performing assets and restructured standard assets) stood at 15 per cent in the nine months
ended December 2014.
SAMPLE PLAN
The study used multistage sampling technique to select sample units for the study,

SAMPLE DESIGN- A sample design is a definite plan for obtaining a sample from a given
population.It refers to the techniques or procedures that the researchers would adopt in
selecting items for the samples. Samples design may as well lay down the number of items to
be included in the sample ie. The size of the sample. Sample design is determine before data
are collected. Here we select the population as sample in our sample design. The selected
respondents should be as representatives of the total population.

SAMPLE SIZE- Keeping in mind all the constraints the size of the sample of our study was
selected as 80.

SAMPLING UNIT- Dena bank, charkop branch in Mumbai. Due to nature of study we also
visited various branches of SBI,ICICI,AXIS etc.

SAMPLING TECHNIQUE- Stratified convenient sampling. All the bank account holders
were taken into consideration. Research was conducted on clear assumptions that the
respondents would give frank and fair answer in a pragmatic way without any bias.

SAMPLING DESCRIPTION-In order to understand the nature and characteristics of various

respondents in this study, the information was collected and analyzed according to their
socio-economic background like education, occupation,age and gender, place of domicile etc.
The descriptions show that these respondents that have been included in the study belong to
different background and this in turn enhances the capability and accuracy of the study.
Data collection
Data was collected by using two main methods- primary data` and secondary data.

SECONDARY DATA- secondary data is the data which is available in readymade form and
which has already been used by other people for various purposes. The sources of secondary
data are newspaper, internet, websites of IBA, journals and other published documents.
Suggestions
Based on the study conducted there are some of the suggestions given by the customers.
These are the comments given by them regarding the improvement of banking services in
India.

 Banks should obey RBI norms and should provide facilitates as per the norms. While
the customers should be given prompt services and the bank officials should be
willingly serving the customers.
 Banks should increase rate of savings account
 Banks should provide loans at a lower intertest rates and education loans should be
given with ease without much documentation
 Prompt dealing with permanent customer and speedy transaction without harassing
the customers.
 Each branch of each bank should be computerised even in rural areas of speedy
transaction.
 RTGS ans NEFT can play a very important role in speedy transaction.
 More ATM coverage should be provided for the convenience of the customers.
 24 hour banking should be induced so as to facilitate the customers who don’t have
time in the day time or in the week days. This will enhance the services.
 The charges of opening saving bank account in private bank are too high. This should
be taken care off.
 Customers generally complain that full knowledge regarding products and services
are not given to them. Hence the bank should be fair enough in disclosing the proper
terms and conditions of the product and services.
 The branch should promote cooperation ans coordination among employees which
can enhance the rate of efficiency.
 Knowledge of local language should be a must for employees of banks.
 Maintenance of proper hierarchy should be there in the bank employees.
 Cutomer relationship management in public sector banks should be given extra
importance.
 Conclusion
The importance of the study may be viewedfrom its contributing to fill an important
gap in literature. That is findings of the study can add to the existing body of
literature, and can serve as a starting point on which future studies can be done. On
the practical dimension, the study may help policy makers of the banks to focus on the
major banking activities that may improve the financial position of the banks. Such
information should help the management of banking industry in creating appropriate
financial stratergies for attanining the expected financial performance.

The results of the study imply that it might be necessary for a management to take all
the required decision to improve the financial performance, which is the base for
operational efficiency of any bank.

It is right time to take suitable and stringent measures to get rid of NPA problem. An efficient
management information system should be developed. The bank staff involved in sanctioning
the advances should be trained about the proper documentation and charge of securities and
motivated to take measures in preventing advances turning into NPA. Public banks must pay
attention on their functioning to compete private banks. Banks should be well versed in
proper selection of borrower/project and in analyzing the financial statement
BIBLIOGRAPHY

BOOKS

kiranPrakashan

Arihant’s how to crack banking interviews

REPORTS

Report on “Indian economic Survey 2012-2013”

WEBSITES

www.iba.com

www.ibps.com

www.kiranprakashan.com
IMPORTANCE OF PRIVATE SECTOR BANKS IN INDIA

The private sector banks play a vital role in the Indian economy. They indirectly
motivate the public sector banks by offering a healthy competition to them. The
following are their importance:

(i) Offering high degree of Professional Management:

The private sector banks help in introducing a high degree of professional

management and marketing concept into banking. It helps the public sector
banks as well to develop similar skill and technology.

(ii) Creates healthy competition:

The private sector banks provide a healthy competition on general efficiency

levels in the banking system.

(iii) Encourages Foreign Investment:

The private sector banks especially the foreign banks have much influence on
the foreign investment in the country.

(iv) Helps to access foreign capital markets:

The foreign banks in the private sector help the Indian companies and the
government agencies to meet out their financial requirements from international
capital markets. This service becomes easier for them because of the presence of
their head offices/other branches in important foreign centres. In this way they
help a large extent in the promotion of trade and industry in the country.

(v) Helps to develop innovation and achieve expertise:

The private sector banks are always trying to innovate new products avenues
(new schemes, services, etc.) and make the industries to achieve expertise in
their respective fields by offering quality service and guidance. They introduce
new technology in the banking service. Thus, they lead the other banks in
various new fields. For example, introduction of computerised operations, credit
card business, ATM service, etc.

IMPORTANCE OF PUBLIC SECTOR BANKS IN INDIA

The importance of public sector banks is increasing day by day even in the era
of globalisation, noted economist and former professor of Economics at
Hyderabad University Dr. D.N. Reddy has said. Delivering the inaugural
address of the 6 General Council of State Bank Staff Union (Kerala Circle) here
on Sunday, he said Kozhikode had a prominent role in the history of struggle
against globalisation. It was Vasco da Gama’s arrival in Kappad that triggered
the use of the market for colonisation. Uninhibited privatisation was the aim of
globalisation, he said.

He said the banking sector was getting increasingly privatised and that it was
this that led to the decline of the sector in many parts of the world including the
USA in 2008. The decline of the sector would eventually lead to the decline of
the nation, Dr. Reddy said, adding it was nationalisation that saved the banking
sector in India in 1969.

National convenor of the union M.V. Murali, in his key note address, said the
unlimited borrowing of the corporates from the banks in the country and refusal
to pay back would lead to a crisis not only in the banking sector, but in the
economy of the country.
The Indian Banks Association was refusing to implement timely wage revisions
citing this problem, he said, demanding the wage revision should be
implemented at the earliest. In fact, the bank employees were heading to protest
measures raising the demand, he added.

FUNCTIONS OF PUBLIC SECTOR BANK IN INDIA

The public banking sector has travelled a long path since its inception in the
country. With the advancement of technology, core banking has been
introduced in the country which has spread to every nook and corner presently.
It has made lot of things quite easier for both customers and employees in the
bank. The basic function of any public sector or private sector bank is to
mobilize the resources and capitals garnered through various deposits and
schemes for varied period and lend the same at higher rates of interest to its own
customers in order to garner more profit from the money. The bank also
provides facilities like lockers, remittance, draft creation, cheque collection and
transfer, bank guarantee credit to its esteemed customers. It also offers
insurance and mutual fund plans to its customers along with providing loan
schemes and savings of their money.
performance of public and private sector banks- A comparison

The performance and roles of public and private sector banks are undergoing
changes. The banks both private and public have to now operate in an
increasingly competitive environment. The competition for public sector banks
is coming from the private sector banbks. Despite having the advantage of a
substantial presence and penetration in the rural areas, the public sector banks
are under tremendous pressure to maintain their margins and to survive the
competition. The customer centric approach of private sector banks have thrown
open many more challenges for the public sector banks and private sector banks
have thrown open many more challenges for the public sector banks especially
in retaining customers and expanding customer base. Especially in retaining
customers and expanding customer base.

We have compared public and private sector banks based on this parameters ,
which are critical while evaluating their performance. These criteria are as
follows:

 Assets and liabilities

 Priority sector lending
 Sensitive sector lending
 Credit deposit ratio
 Capital adequacy
 Distribution network
 Operating expenses
 Return on assets
 Deposit and advances
 Market share
Liabilities and assets of banks

Supported by robust economic growth and industrial recovery, loans and

advances witnessed strong growth, investments in a rising interest rate scenario.
Deposits showed a lack buster perfoemance in the wake of increased
competition from other using instruments. Borrowing and net owned funds,
however, increased sharply underscoring gthe growing importance of non
deposits resources of SCBs.

Priority sector lending

The performance of private sector banks in area of priority sector remained less
satisfactory with 12 out of 30 private sector banks failing to achieve the overall
priority sector targets. Only one private sector bank could achieve the sub
targets within the priority sector.

Sensitive sector lending-

Sensitive sector compromises of capital market, real estate market, commodities

and venture capital. Among bank groups , old private sector banks had the
highest exposure of the sensitive , followed by new private sector banks, foreign
banks and public sector banks. Private sector banks focuses more on sensitive
sectors as these markets are highly volatile involving high return and higher
risk.

Capital adequacy ratio

Among bank groups, the CRAR of new private sector banks improved
significantly, which bought them closer to other bank groups. Within the public
sector banks, the CRAR of natioanlized banks registered a marginal
improvement during the year. A banks CAR is ratio of qualifying capital to risk
adjusted assets. The RBI has set the minimum CAR at 10%a rate below the
minimum indicates that the bank is not adequately capitalized to expand its
operation.

Distribution in network

The expansion in the distribution network of the bank is increasingly evident

from the growth of automated teller machine. There is a surge in the growth of
off site ATM’s with their share in the total ATM’s rising to 32% in public
sector banks and 63% in private sector banks.

Market share

The share of public sector bank showed the deceleration in respect of major
areas of business, whereas that of the new private sector and foreign banks
earned higher share of business. Market share of old private sector bank too
came under pressure .Public sector banks hold 75% market share in major
areas of business.