Description
COMPARISON BETWEEN PRIVATE AND PUBLIC SECTOR BANK
EXECUTIVE SUMMARY
The project is about comparison between Public Sector & Private Sector Bank in India. Scheduled Commercial Banks in India are categorised into five different groups according to their ownership and or nature of operation. Scheduled commercial banks consist of !" public sector banks# $ new private sector banks# !% old private sector banks and &' foreign banks'. Public sector banks are the ones in which the government has a major holding. The( are divided into two groups i.e. )ationali*ed Bank of India and its associates. Private sector banks came into e+istence to supplement the performance of Public sector banks and serve the needs of the econom( better. ,s the public sector banks were merel( in the hands of the government# banks had no incentive to make profits and improve the financial health. Banks operated in regulator( environment with administered rate of interest structure# -uantitative restrictions on credit# high reserve re-uirements and significant proportion of bendable resources going to the priorit( and government sectors. This resulted in low levels of investment and growth# decline in productivit( and erosion of profitabilit( of banking sector. Public Sector & Private Sector Banks are Performs multitude function and services. This Sector Banks are the financial institution that provides services such as accepting deposits and giving business loans. It raises funds b( collecting from businesses and consumers via# # and. It makes to businesses and consumers. It also bu(s and. Its primar( are deposits and primar( are loans and bonds.
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There is a comprehensive polic( framework for .wnership and governance in private sector banks. /hich include minimum capital re-uirement# foreign investment in private sector banks# 0oreign 1irect Investment# 0oreign Institutional Investors# )on 2esident Indians# 1ue diligence process Transition arrangements & Continuous monitoring arrangements. The minimum capital re-uirement for private sector banks is 2s.!%% crore. There has been a guideline on issue and pricing of shares had been prescribed. In terms of e+tant instructions# banks in private sector# whose shares are not listed on the stock e+changes# are re-uired to obtain prior approval of 2eserve Bank of India The performance and the roles of private and public sector banks are undergoing changes. The banks# both private as well as public have to now operate in an increasingl( competitive environment. The customer3centric approach of private sector banks have thrown open man( more challenges for the public sector banks private sector banks have thrown open man( more challenges for the public sector banks. The project includes comparison between the Public Sector & Private Sector Bank which would help to understand various aspect of this of this two sector banks &how the private sector Bank creating competition for the Public sector Bank. ,nd also we are overcome to know step which are taken b( the Public sector Bank to face the challenges of the Private Sector Bank.
Indian Banking System
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The Indian financial s(stem comprises of four segments or components. These are financial institutions# financial markets# financial instruments and financial services. Banks come under the financial institutions segment. 0inancial institutions are intermediaries that mobili*e savings and facilitate allocation of funds in an efficient manner. The Indian financial s(stem was -uite well developed even prior to India4s political independence in ,ugust '$56. Both foreign and domestic banks were present and so was a well3 developed stock market. 7ntil the '$$%s# the Indian financial s(stem was tightl( regulated. 0ollowing the balance of pa(ments crisis in '$$'3$!# a stabili*ation program was initiated with the help of International 8onetar( 0und# which specificall( included a reform of the financial s(stem. The foundation for the financial sector reforms was laid b( recommendations of the Committee on 0inancial S(stem '$$'. The Committee again reviewed the financial s(stem in '$$" and made further recommendations. The objectives of the financial sector reforms were to bring about greater efficienc( and competitiveness in all the spheres of the economic activit(. The reach of organi*ed banking to rural areas and Banking in India has its origin in 9edic times# i.e. !%%% to '5%% BC. Indigenous India Compan( set up the first bank in 8adras. Between '66% and '":% banks such as Bank of ;industan# Commercial Bank# Calcutta Bank# Bank of Calcutta and Bank of Bomba(. # Bank of India ='$%?># Indian Bank'$%6># Bank of Baroda ='$%$># Central bank of India ='$''> and 7nion Bank of India='$'$>. The major functions of these banks were to finance foreign trade while domestic trade was largel( handled b( the 8ultani Shroffs and mone(lenders. Between '$5' and'$5:# the number of banks increased from 56& to 6&6 but these banks suffered from certain limitations such as inade-uate capital structure and unsound methods of operations and management. Thus# the government in consultation with 2eserve Bank of India enacted the Banking Companies ,ct in '$5$. Between '$56 and '$?$ banks were under private ownership of maharaja4s# or king s of the princel( states of India and these banks served the rich families and industrial houses which narrowed the industrial growth of the banking s(stem. The 2eserve Bank of India thus made it compulsor( for reconstruction and or merger of the weak units with the sound one4s as per the Banking Companies ,ct of '$?% and the number of banks declined from :5" in '$56 to "$ in '$?$. 0ourteen private banks were nationali*ed on @ul( '$# '$?$ and another si+ in '$"%. .ne of the objectives of nationali*ation was to e+tend neglected sections of the societ(. Between '$?$ and '$$!# there was rapid e+pansion of bank network. The number of bank branches increased from "!?! to ?%:6%. The banking
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s(stem spread to rural areas. Small Scale# tin( and cottage industries benefited from the spread of banking s(stem. The share priorit( sector in total banking grew up from'5 percentage in '$?$ to5&A in '$$% and banking densit( improved from ?5%%% people per branch in '$?$ to'5%%% people per branch in '$$'.
Emerging Banks in India
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The )arasimham Committee on banking sector reforms suggested that Bmerger should not be viewed as a means of bailing out weak banks. The( could be a solution to the problem of weak banks but onl( after cleaning up their balance sheet.B The Covernment has tried to find a solution on similar lines# and passed an ordinance an September 5# '$$&# and took the initiative to merge )ew Bank of India =)BI> with Punjab )ational Bank =P)B>. 7ltimatel(# this turned out to be an unhapp( event. 0ollowing this# turned out to be an unhapp( event. 0ollowing this# there was along silence in the market till ;10C Bank successfull( took over Times Bank. 8arket gained confidence# and subse-uentl(# we witnessed two more mega mergers. The merger of Bank of 8adhura with ICICI Bank# and of Clobal Trust Bank with 7TI Bank# emerging as a new bank# 7TI3Clobal bank.
/hile the private sector banks are on the threshold of improvement# the Public Sector Banks =PSB4s> are slowl( contemplating automation to accelerate and cover the lost ground. To contend with new challenges posed b( Private Sector Banks# PSBs are pumping huge amounts to update their IT. But still# it looks like# public sector banks need to shift the gears# accelerate their movements# in the right direction b( automating their branches and providing# Internet banking services. ,lthough large PSBs are slowl( venturing into new areas# a few old big3 si*ed banks are still encountering problems of unioni*ed staff though in the milder wa(# and the emplo(ees are still finding their feet in new technologies.
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The private sector banks# in order to compete with large and well established public sector banks# are not onl( fora(ing into IT# but also shaking hands with peer banks to establish themselves in the market. /hile one of the first initiatives was taken in )ovember. It is the first merger event in the histor( of Indian banking# signaling that Indian banking sector joined the 8&, bandwagon. Prior to this private bank merger# there have been -uite a few attempts made b( the government to rescue weak banks and s(nergise the operations to achieve scale economics =but# unfortunatel( were futile>. Presentl(# DSi*e4 of the bank is recogni*ed as one of the major strengths in the industr(. ,nd# mergers amongst strong banks can be both a means to strengthen the base# and of course# to face the cut3throat competition. .n the other hand# if the merger turns out to be mere arithmetical number crunching of two balance sheets without a proper strategic outlook and reorienting goals# it might result in disharmonious human resource problems. , few (ears ago an( talk of bank mergers would have been something abnormal and an( suggestion on bank mergers would have been regarded as nothing short of irreverence. 0or man( (ears the Indian banking sector was monopoli*ed b( twent( public sector banks# and SBI group. /ith the removal of entr( barriers# in '$$:# the emergence of nine private sector banks has given a new glamorous outlook for the banking industr(. The technological savv(# customer oriented service# innovative products have become the da(4s meal.
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Introduction to Pub ic Sector and Pri!ate Sector Banks
Scheduled Commercial Banks in India are categorised into five different groups according to their ownership and or nature of operation. These bank groups are i> State Bank of India and its associates =ii> other nationalised banks =iii> regional rural banks =iv> foreign banks and =v> other Indian SCBs =in the private sector>. Scheduled commercial banks consist of !" public sector banks =State Bank of India and its seven associates# nationalised banks and other public sector bank># $ new private sector banks# !% old private sector banks and &' foreign banks'. Public sector banks are the ones in which the government has a major holding. The( are divided into two groups i.e. )ationali*ed Bank of India and its associates. Private sector banks came into e+istence to supplement the performance of Public sector banks and serve the needs of the econom( better. ,s the public sector banks were merel( in the hands of the government# banks had no incentive to make profits and improve the financial health. )ationali*ation killed competition and stifled competition in banking. Banks operated in regulator( environment with administered rate of interest structure# -uantitative restrictions on credit# high reserve re-uirements and significant proportion of bendable resources going to the priorit( and government sectors. This resulted in low levels of investment and growth# decline in productivit( and erosion of profitabilit( of banking sector. Thus# )arasimham Committee I ='$$'> which recommended the free entr( of new banks in the financial market provided the( confirm the minimum start up capital and other re-uirements b( the permission of 2eserve Bank of India. ,s on 8arch !%%?# the number of scheduled commercial banks in India stood at!'"!. ,s on @une !%%?# the number of banked centers served
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b( scheduled commercial banks stood at &5#:'&. .f these centers# !$#%&$ were single office centers and 5: centers had '%% and more bank offices. The top hundred centers# out of &5#:'& banked centers# arranged according to the si*e of deposits accounted for ?6.6 per cent of the total deposits and the top hundred centers arranged according to the si*e of bank credit accounted for6?.? per cent of total bank credit. ,ggregate deposits of top hundred centers grew at !6.6 per cent in @une !%%? over @une !%%: compared to '".% per cent growth recorded a (ear!%%? over @une !%%:# compared to &!.$ per cent growth recorded in @une !%%:. )ationalised Banks# as a group# accounted for 5".: per cent of the aggregate deposits# while State Bank of India and its ,ssociates accounted for !!.$ per cent. The shares of .ther Scheduled Commercial Banks# 0oreign Banks and 2egional 2ural Banks in aggregate deposits were !%.% per cent# :.5 per cent and &.! per cent# respectivel(. ,s regards gross bank credit# )ationalised Banks held the ma+imum share of 56.? per cent in the total bank credit followed b( State Bank of India and its ,ssociates at !!.? per cent and .ther Scheduled Commercial Banks at !%.& per cent. 0oreign Banks and 2egional 2ural Banks had relativel( lower shares in the total bank credit at ?.$ per cent and !.? per cent# respectivel(&. /ith assets of around 2s 5# $&#%%% crore# State Bank of India =SBI> is the countr(4s largest bank# (et it ranks "5th in the world# according to The BankerE the ne+t biggest is ICICI Bank# which is half the si*e of SBI and ranked around !%% globall(5. The top !: banks F of which# '" are owned b( the government F account for about ": per cent of banking assets. Thus there seems to be concentration as well as fragmentation in the Indian banking sector.
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"U#CTI$#S $" PUB%IC A#& PRIVATE SECT$R BA#'
A()* Primary +unctions ,()*Acce-tance de-osits a( Time &e-osit)* These are deposit repa(able after a certain fi+ed period. 1eposits are not withdraw able b( che-ue# draft or b( other means. It includes the following. ? "i.ed &e-osit )* The deposit can be withdrawn onl( after e+pir( of certain period# sa( & (ears# : (ears or '% (ears. The banker allows a higher rate of interest depending upon the amount and period of time. Previousl( the rates of interest pa(able on fi+ed deposit were determined b( 2BI. Presentl( banks are permitted to offer interest as determined b( each bank. ;owever# banks are not permitted to offer different interest rates to different customers for deposits of same maturit( period# e+cept in the case of deposit of 2S. ': lakhs and above. 0i+ed deposit receipt can not be transferred to other persons. ? Recurring &e-osit )* The customer opens an account & deposit a certain sum of mone( ever( month after a certain period sa( ' (ear or & (ears or : (ears. The accumulated amount along with interest is paid to the customer. It is ver( helpful to the middle & poor sections of the people. This deposit s(stem is useful mechanism for regulars savers of mone(. Interest paid on such deposits is generall( on cumulative basic.
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? Cas/ certi+icatesG3 Cash certificates are issued to the public for a longer period of time. It attracts the people because it4s maturit( value is in multiples of the sum invested. it is an attractive and high (ielding investment for those who can keep the funds for a long time . It is ver( useful account for meeting future financial re-uirement at the occasion of marriage# education of children etc. cash certificates are generall( issued at discount to face value. It means a cash certificate of 2S.' %% %%% pa(able after '% (ears can be purchased now# sa( for 2S. !%%%%. b()*&emand de-osit)* These are the deposit which ma( be withdrawn b( the depositor at an( time without previous notice. it is withdraw able b( che-ue and draft. ? Sa!ing de-osits )* Saving deposit can onl( be held b( individuals and non profit institutions. The rate of interest paid on saving deposit is lower than that of time deposits. These account holders gets the advantage of li-uidit( and small income in the form of interest but there are some restrictions on withdrawals presentl( interest on saving bank account is determined b( 2BI. ? Current account de-osits )* These accounts are maintained b( the people who need to have a li-uid balance. Current account offers high li-uidit(. )o interest is paid on current deposits and these is no restrictions on withdrawals from the current
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account.Thease account are generall( in the case of business firms# institutions and cooperative bodies. These schemes var( from bank to bank.
0()*Ad!ancing o+ oans)*
The commercial banks provide loans and advances in various forms. The( are given below# ? $!erdra+t +aci ity)* This facilit( is given to holder of current account onl(. This is an arrangement with the bankers thereb( the customer is allowed to draw mone( over and above the balance in his her account. This facilit( of overdrawing his her account is generall( pre arranged with the bank up to a certain limit. It is a short term temporar( fund facilit( from bank and the bank will charge interest over the amount overdrawn. This facilit( is generall( available to business firms and companies. ? Cas/ credit )* Cash credit is a form of working capital firms. The customer can operate that account within the sanctioned limit as and when re-uired. It is made against securit( of goods personal securit( etc.on the basis of operation .The period of credit facilit( ma( be e+tended further one advantage under this method is that bank charges interest onl( an account utili*ed and not an total amount sanctioned or credited to the account. ? &iscounting o+ bi s )* It ma( be another form of bank credit. The bank ma( purchase inland and foreign bills before are due for pa(ment b( the drawee. 1ebtors at
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discounted value. The bankers discount is generall( the interest on the full amount for the une+pired period of the bill# the account of the customer in case the bill are ultimatel( not paid i.e. dishonoured.The bill passes to the banker after endorsement. Banks will not dis3accomodation bills. ? %oans and ad!ances )* It includes both demand and term loans# direct loans and given to all t(pe of customers mainl( to businessmen and investors against personal securit( or goods of movable in nature. The loan amount is paid in cash or b( credit to the customer account which the customer can draw at an( time. ? Educationa oan sc/eme )* The 2BI from ,ugust '$$$ introduced a new educational loan scheme for students of full time graduate post graduate professional courses in private professional colleges. 7nder the scheme all public sector banks have been directed to provide educational loan up to 2S. ':#%%% for free seat and 2S. :%#%%% for pa(ment seat student at interest not more than '!A p.a. This loan is available onl( for students whose annual famil( income does not e+ceed 2S. '# %%#%%%. The loan has to be repaid together with interest within five (ears from the date of completion of course. Students in respect of the following subjects areas are covered 8edical or dental course# Hngineering or law studies# Chemical technolog( or# 8anagement course like 8B,# Computer Science ? 1ousing "inance )*
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)owada(s the commercial banks are competing among themselves in providing housing finance facilities to their customers. It is mainl( to increase the housing facilities in the countr(. State bank of India# Indian bank# Canara bank# Punjab national bank have formed housing subsidiaries to provide housing finance. The others bank are also providing housing finance. ;ousing finance up to 2S. : lakhs is treated as priorit( sector advances for banks. The limit has been raised to 2S. '% lakhs per borrower in cities. ? %oans against sa!ing certi+icates)* Banks are also providing loans up to certain value of savings certificates like )ational Savings Certificate# 0i+ed 1eposit 2eceipt# Indira 9ikas Patra# etc. the loan ma( be obtained for personal or business purposes.
? Consumer oans and ad!ances)*
.ne of the important areas for bank financing in recent (ears is towards purchase of consumer durables like T9 sets# /ashing 8achines# 8icro .ven #etc. Banks also provide liberal Car finance. These da(s banks are competing with one another to lend mone( for these purposes as default of pa(ment is not high in these areas as the borrowers are usuall( salaried persons having regular income. Bank rate is also higher. ? %oans against s/ares 2 securities G3 Commercial banks provide loans against the securit( of shares debentures of reputed companies. of the shares subject to a ma+imum amount permissible as
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per 2BI directives. Presentl( one can obtain a loan up to 2s. !% lakhs against the ph(sical shares and up to 2S. !% lakhs against demateriali*ed shares.
? Securiti3ation o+ oans )* Banks are recentl( tr(ing to securities a part of their part of loan portfolio and sell it to another investor. 7nder this method# banks will convert their business loans into a securit( or a document and sell it to some investment or fund 8anager for cash to enhance their li-uidit( position. It is a process of transferring the credit risk from the banker to the bu(er of securitised loans. It involves a cost to the bankers but it helps the bank to insure proper recover( of loan. ? $t/ers )* Commercial banks provide other t(pe of advances such as venture capital advances# jewel loans# etc
4()* Credit Creation
Credit Creation is one of the primar( function of commercial banking when a bank sanction a loan to the customer# it does not give cash to him# but a deposit account is opened in his name and the amount is credited to his account he can withdraw the mone( whenever he needs. , bank sanction loan it creates a deposit. In this wa( the bank increase the mone( suppl( of the econom( such functions is known as credit creation.
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B()* Secondary +unctions
,()* Agency +unctions
? Co ection o+ c/e5ues di!idends interest )* ,s an agent the banks collects che-ue# draft# promissor( notes# interest# dividend etc. on behalf of its customer and credit the amounts to their account. Customer ma( furnish their bank details to corporate where investment is made in sharesE debentures etc. as and when dividend# interest is due the companies directl( send the warrants credit to customer account. Payment o+ rent 6insurance -remiums )* che-ues to the bank for
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The bank makes the pa(ments such as rent# insurance premiums# subscription on standing instructions until further notice till the order is revoked the bank will continue to make such pa(ment regularl( b( debiting the customer account. ? &ea ing in +oreign e.c/ange )* ,s an agent the commercial bank purchase and sell foreign e+change as well for customers as per 2BI e+change control regulations. ? Purc/ase and sa e o+ securities)*
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Commercial banks undertake the purchase and sale of different securities such as shares# debentures# bonds etc. on behalf of their customers. The( run a separate IPortfolio management schemeJ for their big customers.
? Act as corres-ondent )* Commercial banks act as a correspondent of their customer. Small banks even get travel tickets# book vehiclesE receive letters etc. on behalf of the customers. ? Pre-aration o+ income ta. returns )* The( provide income ta+ returns and provide advice on ta+ matters for their customers. 0or those purposes the( emplo( ta+ e+perts and make their services available to their customers.
0( 7enera uti ity ser!ices)*
? Sa+ety %ocker "aci ity)* Safe keeping of important document valuables like jewels is one of the oldest services provided b( commercial banks. ; 1e -s to de!e o- inno!ation and ac/ie!e e.-erts ) The private sector banks are alwa(s tr(ing to innovate new products avenues =new schemes# services> and make the industries to achieve e+perts in their respective fields b( offering -ualit( service and guidance. The( introduce ThusE the( lead the other banks in various new fields. 0or e+ample# introduction of computeri*ed operations# credit cards business# ,T8 service# etc. other branches in important foreign centers. In this wa( the( help a large e+tent in the promotion of trade and
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Per+ormance o+ Pub ic and Pri!ate Sector Banks) A Com-arison
The performance and the roles of private and public sector banks are undergoing changes. The banks# both private as well as public have to now operate in an increasingl( competitive environment. The competition for public sector banks is coming from the private sector banks. 1espite 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 customer3centric approach of private sector banks have thrown open man( more challenges for the public sector banks private sector banks have thrown open man( more challenges for the public sector banks especiall( in retaining customers and e+panding customer base. Hspeciall( in retaining customers and e+panding customer base.
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/e have compared Public and Private sector banks based on this parameters# which are critical while evaluating their performance. These criteria are as followsG '. ,ssets and "#??" =:.5> &$#!5' =!5.:>
Priorit( Sector .f whichG ,griculture
!%%&3%5 !%%53%: !%%&3%5 !#55#5:? &#'%#%$& 5"#$!% =5&.?> =5&.!> =56.&> "5#5&: =':.'> :"#&'' ='%.5> '#%'#6'% ='".'> '#'!#56: =':.6> ?6#?&5 =$.5> '#!$#$"5 ='".'> '5#6&% ='5.!> 6#:$% =6.&> !?#?%% =!:.6>
Small Scale Industries .ther Priorit( Sector
TableG Priorit( Sector # followed b( new private sector banks# foreign banks and public sector banks. Private sector banks focuses more on sensitive sectors as these markets are Private sector banks focuses more on sensitive sectors as these markets are highl( volatile involving high returns and higher risk. Since Public sector banks re-uire high e+pertise and high risk is# involved the( refrain from lending to sensitive sector.
%ending to
Pub ic Sector Bank
$ d Pri!ate Sector Bank
#e: Pri!ate Sector Bank
Capital 8arket 2eal Hstate 8arket Commodities Total advances to Sensitive sector
0M%: 0M%? 0M%: 0M%? 0M%: 0M%? '.' '.! '.' '.& !.! !.& $.' %.' '5.! %.' '!.6 %.' '5.: %.! !".5 %.6 !"." '.&
'%.&
':.:
'5.%
'?.%
&'.&
&!.5
TableG Sensitive Sector lending =; Credit &e-osit Ratio
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The Credit31eposit ratio =C31 ratio> is the proportion of loan3assets created b( the bank from the deposits received. ,mong the "! banks profiled# the aggregate C31 ratio stood at 6%.'A in 0M%? as compared to ?!.6A in 0M%:. /here in private banks# their C31 ratio stood at 6&.5A in 0M%?# higher than 6%.$A for 0M%:. Public sector banks too showed a growth in their C31 ratio at ?".!A as compared to :$.:A in 0M%:. ,s seen earlier# the high rate of bank credit growth during the last two (ears has resulted in this uni-ue behavior of credit3deposit =C31> ratio.
7rou-s
Credit &e-osit Ratio "YD? ''.! ''." '!.? '&.! '!.$ '!.! ''.$ ''.: '!.: '!.& '!." ''.& '&.6 '%.! '!.: '!.' ''.6 '!.?
Public Sector Bank .ld Private Sector Bank )ew Private Sector Bank
TableG Capital ,de-uac( 2atio =A> ?; &istribution o+ #et
rk
The e+pansion in the distribution network of the banks is increasingl( evident from the growth of the automated teller machines. There is a surge in the growth of off3site ,T8s with their share in the total ,T8s rising to &!A in respect of Public Sector Banks# &!A in .ld Private Sector Bank# ?&Ain )ew Private Sector Bank.Computarisation of public sector bank branches is also moving at rapid pace. In !%%6 the pace of computeri*ation progressed much further. Public Sector Bank have $& branches operating abroad in !? countries.
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Particu ars Branches 2ural Semi37rban 7rban 8etropolitan Total ,T8s .n Site .ff Site Hmplo(ees .fficers Clerks Subordinate 0oreign .ffices
Pub ic Sector Banks '"!'$ '''5? $5&$ $%&$ 56"5& '!?%" ?:"6 ?%!' 6&"''% !5"!6% &&%$": ':"":: $&
$ d Pri!ate Sector Banks $&? '556 '!&? $56 5:? ':56 '%:5 5$& 5$?:6 !'&%" !$&%' $%5" $
#e: Pri!ate Sector Banks $6 &!! ?65 ":6 '$:% ?''! !!:: &":6 :$!5$ 55:'$ 55?$ !?' 5
TableG Branches ,T8s Staff in Banks =)umber> @; $-erating E.-enses
The operating e+penses are those e+penses that cover the da(3to3da( functioning of the bank like emplo(ee costs and charges for normal running of business. ,mong the profiled "! banks# the ratio of operating e+pense to total e+pense for the Public Sector Banks was !?.:A# Private Sector Banks was !".5A# while for 0oreign Banks the ratio was nearl( one3third of their total e+penses and stands a little higher compared to their peers Intermediation cost is the ratio of operating e+pense to total assets# and when seen in conjunction with non3interest income e+plains how much is
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the non3interest income able to cover up the operating e+penses of the banks. This gap =the e+cess of operating e+penditure over non3interest income as a percentage to total assets> has been narrowing considerabl( over the past few (ears. ,mong the profiled banks# for Public Sector Banks this gap was %.$A# for private banks %.5A and for 0oreign Banks it stood at %.!A for the (ear ending 8ar %?.
A; Return on Assets
In the list of "! banks profiled# the return on assets for 0oreign Banks was highest at '.:A# followed b( Private Sector Banks at %.$AE and Public Sector Banks at %.?A. The graph depicts that the return on assets bounced back smartl( for 0oreign Banks after the slight decline it witnessed in 0M%:. The return on assets for the Private Sector Banks has more or less remained the same with just a slight decline in it. /hile the return on assets for a Public Sector Banks shows a ver( sharp decline.
5%
E; &e-osits and Ad!ances
1eposits of SCBs grew b( '6." A in 0M%? as against '?.?A in 0M%:# but the advances growth outstripped this pace with a rise of &'."A in 0M%?# over a &&.!A growth in 0M%:. ,s per a recent 2BI report# 0M%? was the second consecutive (ear# when increase in credit in absolute terms was more than the absolute increase in aggregate deposits.
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Year &e-osits :%:?:%% :5!5'%%
Ad!ances In!estment !"56:5% &6':'$% !?6%:%
Tota Assets
State Bank 0M%: Croup 0M%? )ationalised 0M%: Banks 0M%?
?!6'':%
!!5$5:% ?$'"56'% 5!::%$% ''5?"??% 5%"6$:% '5%"6$:% '&!%!?% 5!6"$?%
$&%"$'% :?$55?'% '%"%%6! % &'5?!$% 6&5?%$% !!'&%&%
Private 0M%:
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Sector 0M%? Banks 0oreign 0M%: Banks 0M%? ,ll SCB4s 0M%:
5!"!:!% "?&$%% ''&65?%
&'!"6&% 6:&'$% $6:::%
'"%5"$% 5!":"% :&:?!%
:6'5%?% ':&?&"% !%':"&%
'"&6::6 '':%"&5% % !'?556? ':'?:::% %
"?$6&&% !&::5$5% "?66"% !6"6"6?%
0M%?
,D; Market S/are
The share of Public Sector Banks showed deceleration in respect of major areas of business# where as that of the new private sector and 0oreign Banks earned higher share of business. The market share of the .ld Private Sector Banks too came under pressure. Public Sector Banks hold 6:A market share in major areas of business.
Bank 7rou-
Assets
&e-osits
0DD?
Ad!ances In!estment
0DD> 0DD? 0DD> 0DD?
0DD> 0DD? 0DD>
Public Sector Bank .ld Private Sector Banks )ew Private Sector Banks
0oreign Banks
6:.& 6!.& 6".!
6:.% 65.!
6!.$
6".$
6&.'
:.6
:.5
?.5
?.%
:.$
:.: ':.: ?.5
:.' ''.% 5.$
:.! ':.? ?.!
'!.: ':.' '%." ?.: 6.! 5.6
'&." '&.& :.& ?.:
5!
TableG 8ajor Components of Business# Bank Croup/ise =in A>
,,; #on*Interest Income2Tota Income The non3interest income for all the "! banks profiled in this publication on an average stood at !!.'A of the total income. ,mong the bank groups# non3interest income was the highest for 0oreign Banks at &'A# followed b( Private Sector Banks at '$."AE indicative of the value3added services these banks offer. 0or Public Sector Banks# non3interest income was just ':.&A while interest income was a high "5.6A. )on3interest income includes fee income components such as commission# brokerage and e+change transactions# sale of investments# corporate finance transactions# 8&, dealsE and an( other income other than the interest income generated b( the bank.
,0; Advances
5&
,dvances for all the profiled banks have grown at about &!A and that made b( Private Sector Banks grew at the highest rate of 55A for 0M%? followed b( a growth of &%.6A for Public Sector Banks and &%A for 0oreign Banks. ,mong the major components of total advances# there was no relative change in the percentage share of Bills Purchased and 1iscounted# over the last three (ears. Cash Credits# .verdrafts and
COMPARISON BETWEEN PRIVATE AND PUBLIC SECTOR BANK
EXECUTIVE SUMMARY
The project is about comparison between Public Sector & Private Sector Bank in India. Scheduled Commercial Banks in India are categorised into five different groups according to their ownership and or nature of operation. Scheduled commercial banks consist of !" public sector banks# $ new private sector banks# !% old private sector banks and &' foreign banks'. Public sector banks are the ones in which the government has a major holding. The( are divided into two groups i.e. )ationali*ed Bank of India and its associates. Private sector banks came into e+istence to supplement the performance of Public sector banks and serve the needs of the econom( better. ,s the public sector banks were merel( in the hands of the government# banks had no incentive to make profits and improve the financial health. Banks operated in regulator( environment with administered rate of interest structure# -uantitative restrictions on credit# high reserve re-uirements and significant proportion of bendable resources going to the priorit( and government sectors. This resulted in low levels of investment and growth# decline in productivit( and erosion of profitabilit( of banking sector. Public Sector & Private Sector Banks are Performs multitude function and services. This Sector Banks are the financial institution that provides services such as accepting deposits and giving business loans. It raises funds b( collecting from businesses and consumers via# # and. It makes to businesses and consumers. It also bu(s and. Its primar( are deposits and primar( are loans and bonds.
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There is a comprehensive polic( framework for .wnership and governance in private sector banks. /hich include minimum capital re-uirement# foreign investment in private sector banks# 0oreign 1irect Investment# 0oreign Institutional Investors# )on 2esident Indians# 1ue diligence process Transition arrangements & Continuous monitoring arrangements. The minimum capital re-uirement for private sector banks is 2s.!%% crore. There has been a guideline on issue and pricing of shares had been prescribed. In terms of e+tant instructions# banks in private sector# whose shares are not listed on the stock e+changes# are re-uired to obtain prior approval of 2eserve Bank of India The performance and the roles of private and public sector banks are undergoing changes. The banks# both private as well as public have to now operate in an increasingl( competitive environment. The customer3centric approach of private sector banks have thrown open man( more challenges for the public sector banks private sector banks have thrown open man( more challenges for the public sector banks. The project includes comparison between the Public Sector & Private Sector Bank which would help to understand various aspect of this of this two sector banks &how the private sector Bank creating competition for the Public sector Bank. ,nd also we are overcome to know step which are taken b( the Public sector Bank to face the challenges of the Private Sector Bank.
Indian Banking System
!
The Indian financial s(stem comprises of four segments or components. These are financial institutions# financial markets# financial instruments and financial services. Banks come under the financial institutions segment. 0inancial institutions are intermediaries that mobili*e savings and facilitate allocation of funds in an efficient manner. The Indian financial s(stem was -uite well developed even prior to India4s political independence in ,ugust '$56. Both foreign and domestic banks were present and so was a well3 developed stock market. 7ntil the '$$%s# the Indian financial s(stem was tightl( regulated. 0ollowing the balance of pa(ments crisis in '$$'3$!# a stabili*ation program was initiated with the help of International 8onetar( 0und# which specificall( included a reform of the financial s(stem. The foundation for the financial sector reforms was laid b( recommendations of the Committee on 0inancial S(stem '$$'. The Committee again reviewed the financial s(stem in '$$" and made further recommendations. The objectives of the financial sector reforms were to bring about greater efficienc( and competitiveness in all the spheres of the economic activit(. The reach of organi*ed banking to rural areas and Banking in India has its origin in 9edic times# i.e. !%%% to '5%% BC. Indigenous India Compan( set up the first bank in 8adras. Between '66% and '":% banks such as Bank of ;industan# Commercial Bank# Calcutta Bank# Bank of Calcutta and Bank of Bomba(. # Bank of India ='$%?># Indian Bank'$%6># Bank of Baroda ='$%$># Central bank of India ='$''> and 7nion Bank of India='$'$>. The major functions of these banks were to finance foreign trade while domestic trade was largel( handled b( the 8ultani Shroffs and mone(lenders. Between '$5' and'$5:# the number of banks increased from 56& to 6&6 but these banks suffered from certain limitations such as inade-uate capital structure and unsound methods of operations and management. Thus# the government in consultation with 2eserve Bank of India enacted the Banking Companies ,ct in '$5$. Between '$56 and '$?$ banks were under private ownership of maharaja4s# or king s of the princel( states of India and these banks served the rich families and industrial houses which narrowed the industrial growth of the banking s(stem. The 2eserve Bank of India thus made it compulsor( for reconstruction and or merger of the weak units with the sound one4s as per the Banking Companies ,ct of '$?% and the number of banks declined from :5" in '$56 to "$ in '$?$. 0ourteen private banks were nationali*ed on @ul( '$# '$?$ and another si+ in '$"%. .ne of the objectives of nationali*ation was to e+tend neglected sections of the societ(. Between '$?$ and '$$!# there was rapid e+pansion of bank network. The number of bank branches increased from "!?! to ?%:6%. The banking
5
s(stem spread to rural areas. Small Scale# tin( and cottage industries benefited from the spread of banking s(stem. The share priorit( sector in total banking grew up from'5 percentage in '$?$ to5&A in '$$% and banking densit( improved from ?5%%% people per branch in '$?$ to'5%%% people per branch in '$$'.
Emerging Banks in India
:
The )arasimham Committee on banking sector reforms suggested that Bmerger should not be viewed as a means of bailing out weak banks. The( could be a solution to the problem of weak banks but onl( after cleaning up their balance sheet.B The Covernment has tried to find a solution on similar lines# and passed an ordinance an September 5# '$$&# and took the initiative to merge )ew Bank of India =)BI> with Punjab )ational Bank =P)B>. 7ltimatel(# this turned out to be an unhapp( event. 0ollowing this# turned out to be an unhapp( event. 0ollowing this# there was along silence in the market till ;10C Bank successfull( took over Times Bank. 8arket gained confidence# and subse-uentl(# we witnessed two more mega mergers. The merger of Bank of 8adhura with ICICI Bank# and of Clobal Trust Bank with 7TI Bank# emerging as a new bank# 7TI3Clobal bank.
/hile the private sector banks are on the threshold of improvement# the Public Sector Banks =PSB4s> are slowl( contemplating automation to accelerate and cover the lost ground. To contend with new challenges posed b( Private Sector Banks# PSBs are pumping huge amounts to update their IT. But still# it looks like# public sector banks need to shift the gears# accelerate their movements# in the right direction b( automating their branches and providing# Internet banking services. ,lthough large PSBs are slowl( venturing into new areas# a few old big3 si*ed banks are still encountering problems of unioni*ed staff though in the milder wa(# and the emplo(ees are still finding their feet in new technologies.
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The private sector banks# in order to compete with large and well established public sector banks# are not onl( fora(ing into IT# but also shaking hands with peer banks to establish themselves in the market. /hile one of the first initiatives was taken in )ovember. It is the first merger event in the histor( of Indian banking# signaling that Indian banking sector joined the 8&, bandwagon. Prior to this private bank merger# there have been -uite a few attempts made b( the government to rescue weak banks and s(nergise the operations to achieve scale economics =but# unfortunatel( were futile>. Presentl(# DSi*e4 of the bank is recogni*ed as one of the major strengths in the industr(. ,nd# mergers amongst strong banks can be both a means to strengthen the base# and of course# to face the cut3throat competition. .n the other hand# if the merger turns out to be mere arithmetical number crunching of two balance sheets without a proper strategic outlook and reorienting goals# it might result in disharmonious human resource problems. , few (ears ago an( talk of bank mergers would have been something abnormal and an( suggestion on bank mergers would have been regarded as nothing short of irreverence. 0or man( (ears the Indian banking sector was monopoli*ed b( twent( public sector banks# and SBI group. /ith the removal of entr( barriers# in '$$:# the emergence of nine private sector banks has given a new glamorous outlook for the banking industr(. The technological savv(# customer oriented service# innovative products have become the da(4s meal.
6
Introduction to Pub ic Sector and Pri!ate Sector Banks
Scheduled Commercial Banks in India are categorised into five different groups according to their ownership and or nature of operation. These bank groups are i> State Bank of India and its associates =ii> other nationalised banks =iii> regional rural banks =iv> foreign banks and =v> other Indian SCBs =in the private sector>. Scheduled commercial banks consist of !" public sector banks =State Bank of India and its seven associates# nationalised banks and other public sector bank># $ new private sector banks# !% old private sector banks and &' foreign banks'. Public sector banks are the ones in which the government has a major holding. The( are divided into two groups i.e. )ationali*ed Bank of India and its associates. Private sector banks came into e+istence to supplement the performance of Public sector banks and serve the needs of the econom( better. ,s the public sector banks were merel( in the hands of the government# banks had no incentive to make profits and improve the financial health. )ationali*ation killed competition and stifled competition in banking. Banks operated in regulator( environment with administered rate of interest structure# -uantitative restrictions on credit# high reserve re-uirements and significant proportion of bendable resources going to the priorit( and government sectors. This resulted in low levels of investment and growth# decline in productivit( and erosion of profitabilit( of banking sector. Thus# )arasimham Committee I ='$$'> which recommended the free entr( of new banks in the financial market provided the( confirm the minimum start up capital and other re-uirements b( the permission of 2eserve Bank of India. ,s on 8arch !%%?# the number of scheduled commercial banks in India stood at!'"!. ,s on @une !%%?# the number of banked centers served
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b( scheduled commercial banks stood at &5#:'&. .f these centers# !$#%&$ were single office centers and 5: centers had '%% and more bank offices. The top hundred centers# out of &5#:'& banked centers# arranged according to the si*e of deposits accounted for ?6.6 per cent of the total deposits and the top hundred centers arranged according to the si*e of bank credit accounted for6?.? per cent of total bank credit. ,ggregate deposits of top hundred centers grew at !6.6 per cent in @une !%%? over @une !%%: compared to '".% per cent growth recorded a (ear!%%? over @une !%%:# compared to &!.$ per cent growth recorded in @une !%%:. )ationalised Banks# as a group# accounted for 5".: per cent of the aggregate deposits# while State Bank of India and its ,ssociates accounted for !!.$ per cent. The shares of .ther Scheduled Commercial Banks# 0oreign Banks and 2egional 2ural Banks in aggregate deposits were !%.% per cent# :.5 per cent and &.! per cent# respectivel(. ,s regards gross bank credit# )ationalised Banks held the ma+imum share of 56.? per cent in the total bank credit followed b( State Bank of India and its ,ssociates at !!.? per cent and .ther Scheduled Commercial Banks at !%.& per cent. 0oreign Banks and 2egional 2ural Banks had relativel( lower shares in the total bank credit at ?.$ per cent and !.? per cent# respectivel(&. /ith assets of around 2s 5# $&#%%% crore# State Bank of India =SBI> is the countr(4s largest bank# (et it ranks "5th in the world# according to The BankerE the ne+t biggest is ICICI Bank# which is half the si*e of SBI and ranked around !%% globall(5. The top !: banks F of which# '" are owned b( the government F account for about ": per cent of banking assets. Thus there seems to be concentration as well as fragmentation in the Indian banking sector.
$
"U#CTI$#S $" PUB%IC A#& PRIVATE SECT$R BA#'
A()* Primary +unctions ,()*Acce-tance de-osits a( Time &e-osit)* These are deposit repa(able after a certain fi+ed period. 1eposits are not withdraw able b( che-ue# draft or b( other means. It includes the following. ? "i.ed &e-osit )* The deposit can be withdrawn onl( after e+pir( of certain period# sa( & (ears# : (ears or '% (ears. The banker allows a higher rate of interest depending upon the amount and period of time. Previousl( the rates of interest pa(able on fi+ed deposit were determined b( 2BI. Presentl( banks are permitted to offer interest as determined b( each bank. ;owever# banks are not permitted to offer different interest rates to different customers for deposits of same maturit( period# e+cept in the case of deposit of 2S. ': lakhs and above. 0i+ed deposit receipt can not be transferred to other persons. ? Recurring &e-osit )* The customer opens an account & deposit a certain sum of mone( ever( month after a certain period sa( ' (ear or & (ears or : (ears. The accumulated amount along with interest is paid to the customer. It is ver( helpful to the middle & poor sections of the people. This deposit s(stem is useful mechanism for regulars savers of mone(. Interest paid on such deposits is generall( on cumulative basic.
'%
? Cas/ certi+icatesG3 Cash certificates are issued to the public for a longer period of time. It attracts the people because it4s maturit( value is in multiples of the sum invested. it is an attractive and high (ielding investment for those who can keep the funds for a long time . It is ver( useful account for meeting future financial re-uirement at the occasion of marriage# education of children etc. cash certificates are generall( issued at discount to face value. It means a cash certificate of 2S.' %% %%% pa(able after '% (ears can be purchased now# sa( for 2S. !%%%%. b()*&emand de-osit)* These are the deposit which ma( be withdrawn b( the depositor at an( time without previous notice. it is withdraw able b( che-ue and draft. ? Sa!ing de-osits )* Saving deposit can onl( be held b( individuals and non profit institutions. The rate of interest paid on saving deposit is lower than that of time deposits. These account holders gets the advantage of li-uidit( and small income in the form of interest but there are some restrictions on withdrawals presentl( interest on saving bank account is determined b( 2BI. ? Current account de-osits )* These accounts are maintained b( the people who need to have a li-uid balance. Current account offers high li-uidit(. )o interest is paid on current deposits and these is no restrictions on withdrawals from the current
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account.Thease account are generall( in the case of business firms# institutions and cooperative bodies. These schemes var( from bank to bank.
0()*Ad!ancing o+ oans)*
The commercial banks provide loans and advances in various forms. The( are given below# ? $!erdra+t +aci ity)* This facilit( is given to holder of current account onl(. This is an arrangement with the bankers thereb( the customer is allowed to draw mone( over and above the balance in his her account. This facilit( of overdrawing his her account is generall( pre arranged with the bank up to a certain limit. It is a short term temporar( fund facilit( from bank and the bank will charge interest over the amount overdrawn. This facilit( is generall( available to business firms and companies. ? Cas/ credit )* Cash credit is a form of working capital firms. The customer can operate that account within the sanctioned limit as and when re-uired. It is made against securit( of goods personal securit( etc.on the basis of operation .The period of credit facilit( ma( be e+tended further one advantage under this method is that bank charges interest onl( an account utili*ed and not an total amount sanctioned or credited to the account. ? &iscounting o+ bi s )* It ma( be another form of bank credit. The bank ma( purchase inland and foreign bills before are due for pa(ment b( the drawee. 1ebtors at
'!
discounted value. The bankers discount is generall( the interest on the full amount for the une+pired period of the bill# the account of the customer in case the bill are ultimatel( not paid i.e. dishonoured.The bill passes to the banker after endorsement. Banks will not dis3accomodation bills. ? %oans and ad!ances )* It includes both demand and term loans# direct loans and given to all t(pe of customers mainl( to businessmen and investors against personal securit( or goods of movable in nature. The loan amount is paid in cash or b( credit to the customer account which the customer can draw at an( time. ? Educationa oan sc/eme )* The 2BI from ,ugust '$$$ introduced a new educational loan scheme for students of full time graduate post graduate professional courses in private professional colleges. 7nder the scheme all public sector banks have been directed to provide educational loan up to 2S. ':#%%% for free seat and 2S. :%#%%% for pa(ment seat student at interest not more than '!A p.a. This loan is available onl( for students whose annual famil( income does not e+ceed 2S. '# %%#%%%. The loan has to be repaid together with interest within five (ears from the date of completion of course. Students in respect of the following subjects areas are covered 8edical or dental course# Hngineering or law studies# Chemical technolog( or# 8anagement course like 8B,# Computer Science ? 1ousing "inance )*
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)owada(s the commercial banks are competing among themselves in providing housing finance facilities to their customers. It is mainl( to increase the housing facilities in the countr(. State bank of India# Indian bank# Canara bank# Punjab national bank have formed housing subsidiaries to provide housing finance. The others bank are also providing housing finance. ;ousing finance up to 2S. : lakhs is treated as priorit( sector advances for banks. The limit has been raised to 2S. '% lakhs per borrower in cities. ? %oans against sa!ing certi+icates)* Banks are also providing loans up to certain value of savings certificates like )ational Savings Certificate# 0i+ed 1eposit 2eceipt# Indira 9ikas Patra# etc. the loan ma( be obtained for personal or business purposes.
? Consumer oans and ad!ances)*
.ne of the important areas for bank financing in recent (ears is towards purchase of consumer durables like T9 sets# /ashing 8achines# 8icro .ven #etc. Banks also provide liberal Car finance. These da(s banks are competing with one another to lend mone( for these purposes as default of pa(ment is not high in these areas as the borrowers are usuall( salaried persons having regular income. Bank rate is also higher. ? %oans against s/ares 2 securities G3 Commercial banks provide loans against the securit( of shares debentures of reputed companies. of the shares subject to a ma+imum amount permissible as
'5
per 2BI directives. Presentl( one can obtain a loan up to 2s. !% lakhs against the ph(sical shares and up to 2S. !% lakhs against demateriali*ed shares.
? Securiti3ation o+ oans )* Banks are recentl( tr(ing to securities a part of their part of loan portfolio and sell it to another investor. 7nder this method# banks will convert their business loans into a securit( or a document and sell it to some investment or fund 8anager for cash to enhance their li-uidit( position. It is a process of transferring the credit risk from the banker to the bu(er of securitised loans. It involves a cost to the bankers but it helps the bank to insure proper recover( of loan. ? $t/ers )* Commercial banks provide other t(pe of advances such as venture capital advances# jewel loans# etc
4()* Credit Creation
Credit Creation is one of the primar( function of commercial banking when a bank sanction a loan to the customer# it does not give cash to him# but a deposit account is opened in his name and the amount is credited to his account he can withdraw the mone( whenever he needs. , bank sanction loan it creates a deposit. In this wa( the bank increase the mone( suppl( of the econom( such functions is known as credit creation.
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B()* Secondary +unctions
,()* Agency +unctions
? Co ection o+ c/e5ues di!idends interest )* ,s an agent the banks collects che-ue# draft# promissor( notes# interest# dividend etc. on behalf of its customer and credit the amounts to their account. Customer ma( furnish their bank details to corporate where investment is made in sharesE debentures etc. as and when dividend# interest is due the companies directl( send the warrants credit to customer account. Payment o+ rent 6insurance -remiums )* che-ues to the bank for
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The bank makes the pa(ments such as rent# insurance premiums# subscription on standing instructions until further notice till the order is revoked the bank will continue to make such pa(ment regularl( b( debiting the customer account. ? &ea ing in +oreign e.c/ange )* ,s an agent the commercial bank purchase and sell foreign e+change as well for customers as per 2BI e+change control regulations. ? Purc/ase and sa e o+ securities)*
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Commercial banks undertake the purchase and sale of different securities such as shares# debentures# bonds etc. on behalf of their customers. The( run a separate IPortfolio management schemeJ for their big customers.
? Act as corres-ondent )* Commercial banks act as a correspondent of their customer. Small banks even get travel tickets# book vehiclesE receive letters etc. on behalf of the customers. ? Pre-aration o+ income ta. returns )* The( provide income ta+ returns and provide advice on ta+ matters for their customers. 0or those purposes the( emplo( ta+ e+perts and make their services available to their customers.
0( 7enera uti ity ser!ices)*
? Sa+ety %ocker "aci ity)* Safe keeping of important document valuables like jewels is one of the oldest services provided b( commercial banks. ; 1e -s to de!e o- inno!ation and ac/ie!e e.-erts ) The private sector banks are alwa(s tr(ing to innovate new products avenues =new schemes# services> and make the industries to achieve e+perts in their respective fields b( offering -ualit( service and guidance. The( introduce ThusE the( lead the other banks in various new fields. 0or e+ample# introduction of computeri*ed operations# credit cards business# ,T8 service# etc. other branches in important foreign centers. In this wa( the( help a large e+tent in the promotion of trade and
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Per+ormance o+ Pub ic and Pri!ate Sector Banks) A Com-arison
The performance and the roles of private and public sector banks are undergoing changes. The banks# both private as well as public have to now operate in an increasingl( competitive environment. The competition for public sector banks is coming from the private sector banks. 1espite 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 customer3centric approach of private sector banks have thrown open man( more challenges for the public sector banks private sector banks have thrown open man( more challenges for the public sector banks especiall( in retaining customers and e+panding customer base. Hspeciall( in retaining customers and e+panding customer base.
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/e have compared Public and Private sector banks based on this parameters# which are critical while evaluating their performance. These criteria are as followsG '. ,ssets and "#??" =:.5> &$#!5' =!5.:>
Priorit( Sector .f whichG ,griculture
!%%&3%5 !%%53%: !%%&3%5 !#55#5:? &#'%#%$& 5"#$!% =5&.?> =5&.!> =56.&> "5#5&: =':.'> :"#&'' ='%.5> '#%'#6'% ='".'> '#'!#56: =':.6> ?6#?&5 =$.5> '#!$#$"5 ='".'> '5#6&% ='5.!> 6#:$% =6.&> !?#?%% =!:.6>
Small Scale Industries .ther Priorit( Sector
TableG Priorit( Sector # followed b( new private sector banks# foreign banks and public sector banks. Private sector banks focuses more on sensitive sectors as these markets are Private sector banks focuses more on sensitive sectors as these markets are highl( volatile involving high returns and higher risk. Since Public sector banks re-uire high e+pertise and high risk is# involved the( refrain from lending to sensitive sector.
%ending to
Pub ic Sector Bank
$ d Pri!ate Sector Bank
#e: Pri!ate Sector Bank
Capital 8arket 2eal Hstate 8arket Commodities Total advances to Sensitive sector
0M%: 0M%? 0M%: 0M%? 0M%: 0M%? '.' '.! '.' '.& !.! !.& $.' %.' '5.! %.' '!.6 %.' '5.: %.! !".5 %.6 !"." '.&
'%.&
':.:
'5.%
'?.%
&'.&
&!.5
TableG Sensitive Sector lending =; Credit &e-osit Ratio
&?
The Credit31eposit ratio =C31 ratio> is the proportion of loan3assets created b( the bank from the deposits received. ,mong the "! banks profiled# the aggregate C31 ratio stood at 6%.'A in 0M%? as compared to ?!.6A in 0M%:. /here in private banks# their C31 ratio stood at 6&.5A in 0M%?# higher than 6%.$A for 0M%:. Public sector banks too showed a growth in their C31 ratio at ?".!A as compared to :$.:A in 0M%:. ,s seen earlier# the high rate of bank credit growth during the last two (ears has resulted in this uni-ue behavior of credit3deposit =C31> ratio.
7rou-s
Credit &e-osit Ratio "YD? ''.! ''." '!.? '&.! '!.$ '!.! ''.$ ''.: '!.: '!.& '!." ''.& '&.6 '%.! '!.: '!.' ''.6 '!.?
Public Sector Bank .ld Private Sector Bank )ew Private Sector Bank
TableG Capital ,de-uac( 2atio =A> ?; &istribution o+ #et
rkThe e+pansion in the distribution network of the banks is increasingl( evident from the growth of the automated teller machines. There is a surge in the growth of off3site ,T8s with their share in the total ,T8s rising to &!A in respect of Public Sector Banks# &!A in .ld Private Sector Bank# ?&Ain )ew Private Sector Bank.Computarisation of public sector bank branches is also moving at rapid pace. In !%%6 the pace of computeri*ation progressed much further. Public Sector Bank have $& branches operating abroad in !? countries.
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Particu ars Branches 2ural Semi37rban 7rban 8etropolitan Total ,T8s .n Site .ff Site Hmplo(ees .fficers Clerks Subordinate 0oreign .ffices
Pub ic Sector Banks '"!'$ '''5? $5&$ $%&$ 56"5& '!?%" ?:"6 ?%!' 6&"''% !5"!6% &&%$": ':"":: $&
$ d Pri!ate Sector Banks $&? '556 '!&? $56 5:? ':56 '%:5 5$& 5$?:6 !'&%" !$&%' $%5" $
#e: Pri!ate Sector Banks $6 &!! ?65 ":6 '$:% ?''! !!:: &":6 :$!5$ 55:'$ 55?$ !?' 5
TableG Branches ,T8s Staff in Banks =)umber> @; $-erating E.-enses
The operating e+penses are those e+penses that cover the da(3to3da( functioning of the bank like emplo(ee costs and charges for normal running of business. ,mong the profiled "! banks# the ratio of operating e+pense to total e+pense for the Public Sector Banks was !?.:A# Private Sector Banks was !".5A# while for 0oreign Banks the ratio was nearl( one3third of their total e+penses and stands a little higher compared to their peers Intermediation cost is the ratio of operating e+pense to total assets# and when seen in conjunction with non3interest income e+plains how much is
&$
the non3interest income able to cover up the operating e+penses of the banks. This gap =the e+cess of operating e+penditure over non3interest income as a percentage to total assets> has been narrowing considerabl( over the past few (ears. ,mong the profiled banks# for Public Sector Banks this gap was %.$A# for private banks %.5A and for 0oreign Banks it stood at %.!A for the (ear ending 8ar %?.
A; Return on Assets
In the list of "! banks profiled# the return on assets for 0oreign Banks was highest at '.:A# followed b( Private Sector Banks at %.$AE and Public Sector Banks at %.?A. The graph depicts that the return on assets bounced back smartl( for 0oreign Banks after the slight decline it witnessed in 0M%:. The return on assets for the Private Sector Banks has more or less remained the same with just a slight decline in it. /hile the return on assets for a Public Sector Banks shows a ver( sharp decline.
5%
E; &e-osits and Ad!ances
1eposits of SCBs grew b( '6." A in 0M%? as against '?.?A in 0M%:# but the advances growth outstripped this pace with a rise of &'."A in 0M%?# over a &&.!A growth in 0M%:. ,s per a recent 2BI report# 0M%? was the second consecutive (ear# when increase in credit in absolute terms was more than the absolute increase in aggregate deposits.
7rou-
Year &e-osits :%:?:%% :5!5'%%
Ad!ances In!estment !"56:5% &6':'$% !?6%:%
Tota Assets
State Bank 0M%: Croup 0M%? )ationalised 0M%: Banks 0M%?
?!6'':%
!!5$5:% ?$'"56'% 5!::%$% ''5?"??% 5%"6$:% '5%"6$:% '&!%!?% 5!6"$?%
$&%"$'% :?$55?'% '%"%%6! % &'5?!$% 6&5?%$% !!'&%&%
Private 0M%:
5'
Sector 0M%? Banks 0oreign 0M%: Banks 0M%? ,ll SCB4s 0M%:
5!"!:!% "?&$%% ''&65?%
&'!"6&% 6:&'$% $6:::%
'"%5"$% 5!":"% :&:?!%
:6'5%?% ':&?&"% !%':"&%
'"&6::6 '':%"&5% % !'?556? ':'?:::% %
"?$6&&% !&::5$5% "?66"% !6"6"6?%
0M%?
,D; Market S/are
The share of Public Sector Banks showed deceleration in respect of major areas of business# where as that of the new private sector and 0oreign Banks earned higher share of business. The market share of the .ld Private Sector Banks too came under pressure. Public Sector Banks hold 6:A market share in major areas of business.
Bank 7rou-
Assets
&e-osits
0DD?
Ad!ances In!estment
0DD> 0DD? 0DD> 0DD?
0DD> 0DD? 0DD>
Public Sector Bank .ld Private Sector Banks )ew Private Sector Banks
0oreign Banks
6:.& 6!.& 6".!
6:.% 65.!
6!.$
6".$
6&.'
:.6
:.5
?.5
?.%
:.$
:.: ':.: ?.5
:.' ''.% 5.$
:.! ':.? ?.!
'!.: ':.' '%." ?.: 6.! 5.6
'&." '&.& :.& ?.:
5!
TableG 8ajor Components of Business# Bank Croup/ise =in A>
,,; #on*Interest Income2Tota Income The non3interest income for all the "! banks profiled in this publication on an average stood at !!.'A of the total income. ,mong the bank groups# non3interest income was the highest for 0oreign Banks at &'A# followed b( Private Sector Banks at '$."AE indicative of the value3added services these banks offer. 0or Public Sector Banks# non3interest income was just ':.&A while interest income was a high "5.6A. )on3interest income includes fee income components such as commission# brokerage and e+change transactions# sale of investments# corporate finance transactions# 8&, dealsE and an( other income other than the interest income generated b( the bank.
,0; Advances
5&
,dvances for all the profiled banks have grown at about &!A and that made b( Private Sector Banks grew at the highest rate of 55A for 0M%? followed b( a growth of &%.6A for Public Sector Banks and &%A for 0oreign Banks. ,mong the major components of total advances# there was no relative change in the percentage share of Bills Purchased and 1iscounted# over the last three (ears. Cash Credits# .verdrafts and