International Journal of Management Studies ISSN(Print) 2249-0302 ISSN (Online)2231-2528

http://www.researchersworld.com/ijms/

DOI : 10.18843/ijms/v5i4(6)/12
DOIURL :http://dx.doi.org/10.18843/ijms/v5i4(6)/12

A Comparative Study on the Performance of Selected

Public Sector and Private Sector Banks in India

Ramanjeet Kaur, Dr. Sunita Sukhija,

Research Scholar Dean,
Guru Kashi University Talwandi Sabo University College of Commerce &
(Pb), India Management, Guru Kashi University
Talwandi Sabo (Pb), India

ABSTRACT

Banks are active player in the economy. Banks mobilizing the idle saving of the people and
channeling them to a productive purpose which is necessary for the economic development of the
country. The main objective of this study is to compare the Financial Performance of Selected
Public and Private Banks in India. Those banks government holds a major portion of the share
known as public banks owned by private lenders known as private banks. In this research study,
the top thirty banks of India according to market capitalization were considered. They further
divided into two parts: fifteen public sector banks and fifteen private sector banks. The data used
in the study secondary in nature. This study covers the time periods from 1 April 2008 to 31st
March 2018. To compare the financial performance of the public and private banks following
parameters i.e. Capital Adequacy Ratio, Return on Assets, Return on net worth, Cash deposit
ratio, Interest income, and total fund ratio, Advance to loan fund ratio & Credit deposit ratio has
used. Independent T-test and Mean was used to compare the financial performance of selected
Public and Private sector banks in India.

Keywords: Financial Performance, Return on Assets, Capital Adequacy Ratio, Return on Net
worth.

INTRODUCTION:
A bank is a monetary body which controls the financial activities of individuals and commercial institutions on
their behalf; amongst the broad spectrum of activities conducted in banks on daily basis, the most elementary
task includes receiving deposits and advancing credits to earn profit. Banks can be considered as blood streams
of the nation as it helps feed the economy by playing the important role to the businesses that keep their
operations running on the daily basis, help them grow via offering loans and make future investments to further
their business prospects bother nationally and internationally. Indian banking history has been quite diverse;
just like the diverse culture of our nation many banks have been established throughout the years to meet the
varied needs of our growing economy. The foremost operational bank in India was established in 1839 known
as the “Union Bank of India”. However, it failed to withstand the brutal economic crisis of 1848-49 faced by
our Indian economy.“Bank of Upper India” encountered the similar fate as it also could not survive and closed
it operation in 1913. The timeline of establishment of some other banks are as follows; Bank of Bombay 1840,
Bank of Madras 1843, and Bank of Calcutta 1806 (later renamed as Bank of Bengal in 1809). These three
banks later in 1921 collaborated into one bank renamed as Imperial Bank of India. Since, the independence of
India in 1947 the largest and most rapidly growing bank has been State Bank of India; established in 1955. SBI
has successfully managed to overcome and survive numerous economic challenges faced by our nation.
Nevertheless, not being the only bank to face such a turmoil; Allahabad Bank (established 1865) has also forged
its name in Indian banking history as being the oldest surviving bank of India and it has managed to do so till

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the date. Indian banking sector is mainly divided into two classes: scheduled and nonscheduled banks. Reserve
Bank of India being the head governing body initiates the financial policies and procedures. Those banks that
are included under second schedule of Reserve Bank of India Act 1934 are known as “scheduled banks”. These
banks are further classified under nationalized bank, Regional Rural Banks, Foreign banks and other private
banks. The following chart gives the hierarchical representation of the Indian banking structure.

Indian Banking Structure :

RBI

Unscheduled
Scheduled Banks
Banks

Commercial Banks

Public Sector
Banks

Private Banks

Foregin
Banks

Regional
Banks

Co- operative Banks

There are certain tools that are used to compare the information on financial performance of a particular
institution. For the purpose of this paper “ratio analysis” is considered as the appropriate tool. It will be used to
evaluate efficiency, liquidity, profitability and solvency of thirty banks selected for comparative study.
Section II look deep into the literature review showcasing the study already conducted to compare the
performance of Indian banks. Furthermore Section III presents objectives and research hypothesis along with
data analysis and interpretation in Section IV. Finally the paper concludes with findings in the last chapter.

REVIEW OF LITERATURE:
Meena and Dhar (2014) debated over the liquidity ratio and asset liability management in topmost three public,
private and foreign banks in India. The outcome exhibited that largely banks in India have a very decent short-
term liquidity position.
Agrawal and Yadev (2015) showed a relative study amongst the growth rate of PNB and HDFC bank. In this
paper subsequent factors were used i.e. Net profit growth, Net assets growth, ROA and NPA. The scholars
determined that HDFC growth is healthier than PNB bank.
Bhatia et al (2015) discussed that private banks concentrated on marketing tasks to alert the countryside
residents about the facilities. Individuals are extra pleased with the secluded sector banks rather than public
banks due to its better services.
Gupta and Sundram (2015) inspected the public and private bank for this education major information was
used. In this revision subsequent limits were used i.e. assets, net profit, interest expenditure, interest income,
deposits. The consequence presented that the complete performance of selected private banks is enhanced than
public banks.
Balaji and Kumar (2016) examined the monetary presentation of designated public and private banks. The
outcome presented that effectiveness of both bank were augmented but the development rate was greater in
private banks as compared to public banks.
Kumar (2017) detected that CRM approach directly effects on client area from the examination and private
sector banks preserve better association in advertising methods as compared to public sector banks.

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OBJECTIVE OF THE STUDY:

The main objective of this study is to compare the Financial Performance of Selected Public and Private Banks
in India through the ratio analysis.

Research Hypothesis:
H0: There is no significance difference in the Financial Performance of Public and Private Sector Banks in India.
H1: There is Significance difference in the Financial Performance of Public and Private Sector Banks in India.

RESEARCH METHODOLOGY:
Sample Unit:
This study include total thirty banks which further classified into fifteen Public sector Banks and fifteen
Private sector Banks in India. Top Public as well as Private sector Banks on the basis of market capitalization/
Income as per year 2017 will be selected for this study.

Scope of the study:

The analysis was conducted for the following parameters:
 Capital Adequacy Ratio: The Capital Adequacy Ratio (CAR) is a degree of a bank's accessible capital stated
as a proportion of a bank's risk-weighted credit exposures. It is used to guard investors and encourage the
steadiness and effectiveness of monetary organizations. Rendering to Basel III standards, it is set at
8percent. RBI standards for Indian commercial banks uphold CAR 9 percent in contrast to Indian public
sector banks that uphold CAR at 12percent.CAR is mostly used to quantify the monetary power through its
wealth and properties. Generally, bank with great CAR is reflected as more secure and probable to meet its
monetary debt.
 Net worth Ratio: This shows the profit that stockholders possibly will collect on their stock in an enterprise,
if entire of the revenue received were to be delivered straight to them. Consequently, the ratio is established
from the viewpoint of the stockholder, not the enterprise, and is used to examine depositor revenues. The
ratio is beneficial as a degree of how healthy an enterprise is using the stockholder stock to generate
revenues for them. Return on net worth is used to quantify the profitability of the corporation in the form of
percentage. It clarifies the effectiveness of the stockholders wealth to produce income. It specifies how
much revenue has been produced for each dollar of equity stock. This proportion is precisely represented as:
RONW= Net Income/ Shareholders’ Equity
 Interest Income to Total Fund Ratio: Net interest refers to the variance amongst the income that is produced
from a bank's possessions and the expenditures related with compensating out its obligations, once it is
divided by overall funds, it is named as net interest income to total funds ratio. It clarifies about the entire
net margin as a fraction over the assets of the banks.
 Return on Assets Ratio: It is a gauge of exactly how moneymaking an enterprise is comparative to its entire
assets. This provides a supervisor, stockholder, or predictor awareness as to how effective a business's
administration is at spending its assets to produce incomes.ROA is a monetary ratio that displays the fraction
of revenue a business receives in relation to its total resources. Net income is cultivated from revenue report
of a business and is the profit after tax. This proportion is applied in equating those businesses, which have
identical level of capitalization. Greater the ROA healthier the organization. It is Net Income/ Total Assets
 Advance to Loan Fund Ratio: Advances to loan fund refers to any advance made on an upcoming obligation
or compensation. The term, advance funding, is used generally, fluctuating from individual or venture loans
to upcoming promised expenditures.
 Credit Deposit Ratio: It is proportion of how far a bank offers out of the credits it has mobilized. A very little
percentage specifies banks are not making complete use of their supplies. This ratio provides the suggestion
concerning the strength of the bank. Credit deposit ratio is fixed at 75 per cent for banking segment, on the
other hand, for the Indian banking it is fixed at 70 per cent. If proportion is excessively great, it means that
bank might not have sufficient liquidity to conceal any unexpected fund necessities and on the other hand if the
proportion is excessively small, the bank might not be earning as much as it might be.
 Cash Deposit Ratio: CDR is the ratio of how much a bank lends out of the deposit it has mobilized. It
demonstrates how much bank’s main reserves are being used for advancing. It can furthermore be well-
defined as Total cash in hand with RBI/ Total deposits.

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Furthermore to validate the hypothesis described in the former section, t-test were conducted using spss
software.

Time period of the study:

This paper covered the time period of ten years from 1st April 2008 to 31st March 2018.

Data Collection:
The data has been collected from secondary sources i.e. Reserve Bank of India, banks websites, annual reports
of the respective banks. Fifteen Private sector and fifteen Public sector banks were selected on the basis of their
market capitalization.

DATA ANALYSIS AND INTERPRETATION:

Capital adequacy Ratio:
Table 1: Capital Adequacy Ratio for selected Public and Private Sector Banks (in per cent)
Public Banks Mean Standard Deviation
SBI 13.01 0.72
BOB 12.96 1.33
PNB 12.31 1.42
Canara 12.61 1.67
BOI 11.69 0.98
CBI 11.65 0.80
IB 13.14 0.36
IDBI 11.92 1.26
Union 11.69 1.00
Syndicate 11.93 0.78
IOB 11.69 1.92
Vijaya 12.55 1.02
Allahabad 11.54 1.56
UCO 12.20 1.43
Corporation 12.28 1.82
Private Banks
HDFC 16.04 0.90
Kotak 17.91 1.39
ICICI 17.89 1.27
Axis 15.07 1.38
IndusInd 14.47 1.32
Yes 17.18 1.71
Federal 15.83 2.25
RBL 24.28 15.06
City Union 14.46 1.55
Karur 13.89 1.02
DCB 14.35 1.05
SIB 13.35 1.22
J&K 12.95 1.49
Karnataka 12.70 0.58
Lakshmi Vilas 11.68 1.61
Group CAR Public Banks 12.2187 0.54131
Group CAR Private Banks 15.4759 3.06555
Source: Annual Reports of Banks & moneycontrol.com
F=10.108, Sig = .001 < 0.05
The above table shows that CAR is highest for SBI among public sector banks, having mean value of 13.01 and
is highest for RBL bank in case of private sector banks having value of 24.28. Both these banks have CAR
mean value more than average CAR value for the respective groups of banks. This means that financial strength
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for these two banks is very strong. These banks are therefore interpreted to be safest of the respective groups.
Same value is least for Allahabad and Lakshmi Vilas bank in the respective sector. However, all of the private
sector banks expect Lakshmi Vilas bank have higher CAR than average CAR for the entire public sector.
The important p- value of Levene’s test is .004<0.05then equal variance not assumed is .001<0.05 then
hypothesis Ho is rejected. It specifies that there is noteworthy dissimilarity in financial performance amongst
Public and Private Sector banks in Capital Adequacy Ratio.

Net worth Ratio:

Table 2: Return on Net worth Ratio for selected Public and Private Sector Banks (in per cent)
Public Banks Mean Standard Deviation
SBI 9.87 5.61
BOB 9.55 11.48
PNB 8.06 18.01
Canara 9.46 13.21
BOI 4.94 15.20
CBI 1.2 16.59
IB 13.99 6.64
IDBI -3.03 22.14
Union 10.18 12.99
Syndicate 8.01 15.53
IOB -5.28 21.45
Vijaya 10.34 3.52
Allahabad 3.13 24.20
UCO 0.67 27.96
Corporation 6.27 18.21
Private Banks
HDFC 16.59 1.64
Kotak 11.68 2.25
ICICI 10.31 2.50
Axis 14.07 5.84
IndusInd 15.03 2.18
Yes 18.63 2.70
Federal 10.71 2.60
RBL 7.07 2.94
City Union 17.51 3.09
Karur 14.86 4.85
DCB 4.77 11.04
SIB 13.44 4.67
J&K 10.19 15.05
Karnataka 10.06 2.97
Lakshmi Vilas 6.19 12.03
Group Net worth Ratio for Public Banks 5.8273 5.46219
Group Net worth Ratio for Private Banks 12.1156 4.13250
Source: Annual Reports of Banks & moneycontrol.com
F=1.256, Sig =0.001< 0.05
Among public sector banks, IDBI clocks highest net worth ratio of 13.99 whereas IDBI and IOB have negative
net worth ratio among public banks. Yes Bank in the private sector group leads the tally with highest net worth
ratio of 18.63. Group net worth ratio for the public banks is far less as equated to the same ratio of private sector
banks. There is not a single private sector bank having negative net worth ratio. This reflects that stakeholders
of the private banks are in sound position than stakeholders for the public banks.
The important p- value of Levene’s test is .272>0.05then equal variance assumed is .001<0.05 then hypothesis
Ho is rejected. It designates that there is noteworthy dissimilarity in financial performance amongst Public and
Private Sector banks in Net worth Ratio.

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Interest Income to Total Fund:

Table 3: Interest Income to Total Fund Ratio for selected Public and Private Sector Banks (in per cent)
Public Banks Mean Standard Deviation
SBI 7.91 0.61
BOB 6.84 0.68
PNB 8.2 0.72
Canara 8.26 0.72
BOI 7.34 0.85
CBI 7.81 1.23
IB 8.63 0.71
IDBI 7.99 0.61
Union 8.29 0.67
Syndicate 8 0.58
IOB 10.02 3.13
Vijaya 8.55 0.57
Allahabad 8.47 0.81
UCO 7.9 0.81
Corporation 8.24 0.53
Private Banks
HDFC 9.32 1.24
Kotak 10.15 1.05
ICICI 7.25 1.30
Axis 8.42 1.00
IndusInd 9.77 0.73
Yes 9.36 1.13
Federal 9.14 0.74
RBL 8.31 0.56
City Union 9.9 0.54
Karur 9.8 0.5
DCB 9.39 0.78
SIB 9.1 0.64
J&K 8.62 0.50
Karnataka 9.16 0.73
Lakshmi Vilas 9.6 0.79
Group Interest Income to Total Fund Ratio for Public Banks 8.1673 0.68935
Group Interest Income to Total Fund Ratio for Private Banks 9.1685 0.75830
Source: Annual Reports of Banks & moneycontrol.com
F=0.343, Sig =0.001< 0.05

As seen from the table above, the group value for the interest income to total fund ratio for both public and
private sector banks do not differ significantly having the value of 8.1 and 9.1 respectively. Kotak bank and IOB
lead their respective groups having the value of 10.15 and 10.02. Except BOB every bank in both the sectors
have the value higher than 7.0
The significant p- value of Levene’s test is .563>0.05then equal variance assumed is .001<0.05 then hypothesis
Ho is rejected. It designates that there is noteworthy dissimilarity in financial performance amongst Public and
Private Sector banks in Interest Income to Total Fund Ratio.

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Return on assets Ratio:

Table 4: Return on Assets Ratio for selected Public and Private Sector Banks (in per cent)
Public Banks Mean Standard Deviation
SBI 0.64 0.35
BOB 0.56 0.92
PNB 0.55 0.99
Canara 0.73 0.84
BOI 0.28 0.78
CBI -0.064 0.75
IB 0.99 0.50
IDBI -0.08 1.13
Union 0.55 0.68
Syndicate 0.39 0.68
IOB -0.12 1.06
Vijaya 0.52 0.16
Allahabad 0.32 0.95
UCO 0.08 0.98
Corporation 0.62 0.94
Private Banks
HDFC 1.75 0.28
Kotak 1.62 0.32
ICICI 1.37 0.34
Axis 1.41 0.59
IndusInd 1.55 0.45
Yes 1.54 0.15
Federal 1.11 0.29
RBL 0.96 0.25
City Union 1.5 0.13
Karur 1.19 0.38
DCB 0.49 1.04
SIB 0.85 0.29
J&K 0.77 1.08
Karnataka 0.75 0.18
Lakshmi Vilas 0.37 0.70
Group ROA for Public Banks 0.3989 0.08491
Group ROA for Private Banks 1.1537 0.43317
Source: Annual Reports of Banks & moneycontrol.com
F=2.018, Sig = 0.000< 0.05

HDFC gives highest return on assets when it comes to private sector banks. ROA is 1.75 for the HDFC bank
and 0.37 for Lakshmi Vilas bank. There is also big difference between the group ROA value for the public and
private sector. In public sector, some of the banks like CBI, IDBI and IOB have negative return on their assets.
Such banks need to improve their ROA to gain the confidence of their investors. Higher value for the private
sector banks indicates that if a shareholder would have to choose a bank for the investment purpose then private
banks prove to be the safest bet among all.
The significant p- value of Levene’s test is .166>0.05then equal variance assumed is .000<0.05 then hypothesis
Ho is rejected. It designates that there is important dissimilarity in financial performance amongst Public and
Private Sector banks in Return on Asset Ratio.

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Advance to loan fund:

Table 5: Advance to Loan Fund Ratio for selected Public and Private Sector Banks(in per cent)
Public Banks Mean Standard Deviation
SBI 77.18 3.59
BOB 73.9 4.83
PNB 74.79 4.68
Canara 71.44 5.01
BOI 71.77 6.93
CBI 66.49 9.30
IB 75.26 3.20
IDBI 67.7 7.15
Union 74.59 3.59
Syndicate 76.01 3.95
IOB 69.56 7.64
Vijaya 69.54 2.94
Allahabad 71.84 2.14
UCO 66.8 8.68
Corporation 68.57 5.68
Private Banks
HDFC 79.54 5.08
Kotak 81.77 6.14
ICICI 71.16 5.37
Axis 75.04 2.58
IndusInd 76.17 7.68
Yes 75.17 10.29
Federal 75.92 3.53
RBL 79.75 13.96
City Union 78.02 5.82
Karur 77.39 1.85
DCB 77.52 9.78
SIB 75.15 3.04
J&K 66.91 3.52
Karnataka 69 4.16
Lakshmi Vilas 77.2 2.89
Group Advance to Loan Fund for
71.6992 3.48981
Public Banks
Group Advance to Loan Fund for
75.7153 4.02285
Private Banks
Source: Annual Reports of Banks & moneycontrol.com
F=0.000, Sig=0.007< 0.05

SBI leads the pack for the public sector bank group having highest value of 77.18 for the advance to load fund
ratio while Kotak bank leads the private sector having the value of 81.77. There is not much significant different
when the group values for the respective banks are compared. Almost all of the banks, let it be public or private,
have similar values ranging from 66 to 81.
The significant p- value of Levene’s test is .988>0.05then equal variance assumed is .007<0.05 then hypothesis
Ho is rejected. It shows that there is substantial dissimilarity in financial performance amongst Public and
Private Sector banks in Advance to loan Fund Ratio.
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Credit deposit ratio:

Table 6: Credit Deposit Ratio for selected Public and Private Sector Banks (in per cent)
Public Banks Mean Standard Deviation
SBI 80.71 4.545258
BOB 72.24 1.87767
PNB 74.71 3.444978
Canara 70.65 1.524155
BOI 73.55 3.46001
CBI 67.51 8.455318
IB 72.44 2.159167
IDBI 83.78 7.776726
Union 75.55 3.683739
Syndicate 77.15 3.49
IOB 73.3 4.68
Vijaya 68.6 2.39
Allahabad 72.05 0.86
UCO 71.1 10.85
Corporation 69.69 3.18
Private Banks
HDFC 79.03 5.92
Kotak 93.9 5.37
ICICI 97.1 5.63
Axis 81.08 8.85
IndusInd 83.97 8.76
Yes 80.76 8.20
Federal 74.36 2.32
RBL 77.44 13.28
City Union 73.88 4.39
Karur 75.16 3.48
DCB 78.75 5.55
SIB 71.46 2.69
J&K 65.13 4.08
Karnataka 65.8 4.025
Lakshmi Vilas 73.23 2.81
Group Credit Deposit Ratio for Public
73.5414 4.38949
Banks
Group Credit Deposit Ratio for Private
78.0748 8.82355
Banks
Source: Annual Reports of Banks & moneycontrol.com
F=3.625, Sig=0.090> 0.05

IDBI maintains its credit deposit ratio at 83.78 in the public sector banks and ICICI maintains this value at 97.1
in the private sector banks. This indicates that these two banks are making the best use of their resources to
generate income. The group credit deposit ratio for the private banks is slightly on the higher level than the
public sector banks. The significant p- value of Levene’s test is .067>0.05then equal variance assumed
is .086>0.05 then hypothesis Ho is accepted. It designates that there is no noteworthy dissimilarity in financial
performance amongst Public and Private Sector banks in Credit Deposit Ratio.

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Cash deposit ratio:

Table 7: Cash Deposit Ratio for selected Public and Private Sector Banks (in per cent)
Public Banks Mean Standard Deviation
SBI 6.77 1.44
BOB 4.45 1.11
PNB 5.56 1.49
Canara 5.18 1.12
BOI 5.53 0.92
CBI 9.01 4.71
IB 5.62 1.55
IDBI 6.41 2.02
Union 5.63 1.44
Syndicate 6.02 1.89
IOB 5.73 0.70
Vijaya 5.55 2.01
Allahabad 5.15 0.82
UCO 4.79 1.32
Corporation 6.71 1.26
Private Banks
HDFC 7.54 2.38
Kotak 5.62 1.39
ICICI 7.7 2.19
Axis 6.54 0.94
IndusInd 6.36 0.85
Yes 5.89 1.09
Federal 5.39 0.92
RBL 7.15 2.03
City Union 5.89 1.44
Karur 5.64 0.76
DCB 5.39 0.95
SIB 4.84 0.78
J&K 5.27 1.27
Karnataka 5.76 0.91
Lakshmi Vilas 6.05 1.39
Group Cash Deposit Ratio for
5.8778 1.07924
Public Banks
Group Cash Deposit Ratio for
6.0724 0.84182
Private Banks
Source: Annual Reports of Banks & moneycontrol.com
F=0.115, Sig=0.587>0.05

The banks namely, CBI in the public sector having cash deposit ratio at 9.01 and ICICI having cash deposit
ratio at 7.7 are the leaders in their respective segment. The group value however are approx. same for both the
sectors. Similar values indicate that both these sectors are mobilizing similar value of their main reserves for
advancing the loans to their customers. The significant p-value of Levene’s test is .737>0.05then equal variance
assumed is .586>0.05 then hypothesis Ho is accepted. It designates that there is no noteworthy dissimilarity in
financial performance amongst Public and Private Sector banks in Cash Deposit Ratio.

CONCLUSION:
The values of sig the t-test are lesser than 0.05 for all the parameters accept for the cash and credit deposit ratio.
This means that there is no significant difference between the private and public sector banks when it comes to
these two ratios. This reflects that both the private and public sector banks are doing equally well to carry out
their lending activities to their customers. By using the independence T-test it is clear that there is noteworthy
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dissimilarity in financial performance amongst Public and Private Sector banks in Capital Adequacy Ratio,
Interest Income to total Fund Ratio, Return on Asset Ratio, and Advance to loan Fund Ratio. There is no
noteworthy dissimilarity in financial performance between Public and Private Sector banks in Credit Deposit
Ratio, Cash Deposit Ratio. The return on net worth is ratio is far better for the private banks than public sector
banks having the mean value of 12.11 as equated of 5.8 of public sector banks. This would mean that private
banks are using the investor’s money in a better way to generate income. This is reason of worry for the public
sector banks since their returns are lesser than private banks. Public sector banks need to upgrade their net
worth ratio to lure the stakeholders. Another significant difference is obtained for return on assets ratio which is
1.15 for private sector banks and 0.39 public sector banks. This means that they private sector banks are
generating higher returns against their assets.

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