The public sector banks are government-owned institutions where the GOI holds the majority of the stakes. They are an integral part of the country’s banking system. They work on behalf of the government in enacting government schemes and providing easy access to credit in rural and urban areas.
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The public sector banks came into existence when the imperial Bank was nationalised. The government post nationalising the imperial Bank took further steps to consolidate and nationalise the State Bank of India in 1955. Subsequently, the public sector of Indian Banking was implemented and the scope of banking widened with two rounds of nationalisation of the Major Banks. In the first phase, 14 national banks were consolidated. In the second phase, in April 1980, 6 more banks were nationalised.
Though the public sector banks still enjoy a higher market capitalisation, their financial health continues to remain unsatisfactory. There are several reasons why PSBs are not doing well. The PSBs have to conform to certain obligations i.e. economic and social that has reduced their efficiency. The PSBs not only work to gain business but also work as a government body in alleviating poverty, employment generation, creation of fresh resources for development and social inclusion. Thus the PSBs have achieved success in achieving their goals like credit deployment, participation in the priority lending sector and thus their performance must not be measured only in terms of profitability.
Ratio return on assets:
Returns on assets can be measured using the formula of net profit divided by the average total assets. This ratio is the measure of the bank’s profit per currency unit of assets. The PSBs in the initial years of reform have shown negative returns until 1996. However, from the financial year 1996-97, the situation changed for good. In the year 1997-98, the return on assets of PSBs is seen to be 0.73% but in the following years, due to the net losses registered by some banks, the ROA fell and in the financial year 1999-2000 and stood at 0.57%. Thus the average of 19 nationalised banks shows the same behavioural patterns as the PSBs as a whole. SBI and its associate banks show a positive return on assets throughout the period, when the average returns on assets of SBI is 0.60%.
Operating expenses and profit:
Through the analysis of the public sector banks, reports of analysis of PSBs at branch level reveal the business, operating expenses and profits on an average have increased at a rapid rate during the period of the survey. The increase is significant in case of business and operating expenses. The reports reveal that the performance of SBI and Associate banks, on an average, is better than that of nationalized banks in business and profit. However, their operating expenses were greater than the other nationalised banks.
Profit per employee:
The profit per employee of the nationalised banks is revealed in extensive surveys. These surveys state that the SBI and its associate banks have made a profit during the course of these surveys. However, the PSBs as a whole started making profits after the year 1996-97. The surveys reveal that the average profit per employee of the PSBs in the survey period was Rs. 0.40 Lakhs. The growth rate of the PSBs is seen to be 70.16% and 42.99%. However, when these banks are assessed individually the profit per employee is seen to be negative in certain banks. This is due to the accumulated bad debts and higher provisioning of NPAs in the first three to four years of reforms that a large number of PSBs sustained losses.
Capital deposit ratio:
This ratio indicates the amount of bank resources being deployed through loans and advances. The ratio of 60% is considered as a standard for the banks. Thus as per the surveys, it is seen that the CD of SBI and its associate banks are higher than those of the nationalised banks in all the years. While the average CD of SBI was 54.06%, the CD s of other nationalised banks was 48.26%. For the PSBs, the CD ratio reached an all time low in the year 1998-99. However, the rapid increase in investments and deposit ratio post 1992 are the reasons for low credit deposit ratio of PSBs.
The Efficiency of PSBs:
It appears that all the public sector banks have not responded to the process of reforms in the same manner. While some of them accepted and recorded improvement other banks failed to show improvement. This is one of the main reasons why Public banks are losing business to their private counterparts.
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