Performance of Public and Private Sector Banks in India

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EMPEROR INTERNATIONAL JOURNAL OF

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Emperor International Journal of Finance And Management Research [EIJFMR] ISSN: 2395-5929

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PERFORMANCE OF PUBLIC AND PRIVATE SECTOR BANKS IN

INDIA

Mrs. K.SHENBAGAM

Research Scholar (M.Phil.)

D.B. Jain College, Thoraipakkam, Chennai -97

Abstract

The banking sector has become the

foundation of modern economic

development of a country. The effect of

LPG in the financial sector in India is

exposing Indian banks to a new economic

environment that is characterized by

increased competition and new regulatory

requirements. So there is a need to

examine their strengths and weakness of

banking sector. The public and private

sector banks are very important segments

of banking sector in India. The present

study is comparative study of public and

private sector bank for three years from the

year 2011 to 2013. The study based on

secondary data. Both the banks have been

compared on the basis of seven

parameters. i.e. Branch expansion,

advances, borrowings, profitability,

deposits, non-performing assets, income

and investments. Overall, it may be

concluded that public sector banks even

have dominant position in numbers of

branches in all over India but still facing

competition from private sector banks

because the public sector banks requires to

working in rural areas, it resulting in high

per unit transaction costs. So, they should

adopt advancement in technology for

overcoming reduction of costs in rural

branches.

Keywords :

Introduction

Capital formation is very essential for a

growing economy. it depends upon the

financial sector of a country. The banking

system is the most dominant segment of

the financial sector. Because 80 percent of

the funds flowing from banking sector.

Now in India, after the implementation of

Liberalization, Privatation and

globalization (LPG) increasing pressure on

every sector of the economy where

banking is the most affected sector among

the services sector of the economy. In the

pace much competitive pressure building

up for Indian banks both from within and

outside. In current days, public sector

banks are facing much competition from

new private sector banks and foreign

banks to retain their share in the market. In

this high competitive environment there is

a need to evaluate the performance of

Indian banking to examine strengths and

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India has 88 scheduled commercial banks

(SCBs) 26 public sector banks, 22 private

sector banks and 31 foreign banks. They

have a combined network over 93080

branches and 74505 ATMS. According to

a report by ICRA limited a rating agency

the public sector banks hold 75% percent

of total assets of banking industry with the

private and foreign banks holding 18.2%

and 6.5% respectively.

Statement of the Problem

The public and private banks are playing a

major role in the development of Indian

Banking Industry as well as the national

economy. They have made

Banking more efficient and customer

friendly,the problem to be investigated in

this study stated as “A Study on

Comparative Performance between public

and private sector banks in India”.

Performing may be measured through the

following factors:

 The branch expansion  The growth of deposits  The growth of Advance  The profitability

 Nonperforming Assets (NPA)  Total incomes and Investments

The banking industry in India has

undergone revolutionary changes due to

initiation of reform. The Narasimban

committee in the year 1991 and 1998 to

bring about greater efficiency in banking

operations and to strengthen Indian

financial system and make it

internationally competive. In July 1993 as

part of the banking reform process and as a

measure to induce competition in the

banking sector RBI permitted the private

sector banks.

In the pace of much competitive peruse

inherent rigidities in public sector banks to

enhance their overall efficiency pose series

challenges. In current days, public sector

banks are facing much competition from

private sector banks and foreign banks to

retain their share in the market. In this

circumstances, There is a need to evaluate

and compare performance of public and

private sector banks in India.

The growth of real GDP is linked to the

financial sector through increased savings,

investment and improved efficiency in

financial intermediation. But the Indian

economy is estimated to grow by 6.9

percent in 2011-12 after having grown at

the rate of 8.4 percent in each of the two

preceding years. This indicates a

slowdown compared not just too the

previous two years but 2003 to 2011

(except 2008-2009) the banking system

should be financially sound if it is in a

position to carry on its business

performance evoluation is an important

issue and currently required for the Indian

banking industry to examine the strengths.

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the rate of GDP and deposit growth rate.

Hence, it is indented to make an attempts

study the comparative performance

between private and public banks in India.

Review of literature

Salam Abdus and kulsum umma (2004) in

their study had observed the saving

behavior in India. The objective of the

study was to find the determinants of

savings by analyzing saving behavior in

India over a period of nineteen years. i.e.,

from 1980-81 to 1998-99. The

methodology adopted was simple and

multiple regression models were used.

From the analysis it was found that a

favorable macro-economic environment

supported by string structure reforms

including liberalization of financial market

should help domestic saving to increase

substantially.

M.Syed Ibrahim (2009), his study the main

objectives the functional spread of the

scheduled commercial banks. He found

that the deposits of scheduled commercial

banks reveals that between 2001-2006, the

deposits growth has been consistently

positive. He also found that the banks face

increasing costs incurred on staff,

provision for sanction, technology and

advertising among others. Banks have to;

therefore create new avenues of business

such as fee-based income.

Haresh Barot (2010), his study the major

objective is to the impact of financial

sector reforms Indian economy with

specific reference to banking sector

considering certain definite key economic

indicators. This study found that the

financial sector reform have had a

considerable impact on banking sector to

mobilize financial savings. The

restructuring of the banking sector and

liberal entry and exit policies resulted in

dynamic growth of banks.

K.V.N.Prasad and Dr.D.Maheshwara

Reddy and Dr.A.A.Chari (2011), his study

has been conducted to examine the

economic sustainability of all public sector

banks in India using CAMEL model

during the period 2006-10. The study

revealed that, state bank of Bikaner and

jaipur stood at top position in terms of

capital adequacy. In front of assets quality

bank of baroda placed at first position.

Punjab and Sindh Bank was at top most

position in case of management efficiency.

In context of earning quality Indian bank

positioned at first. It’s again BOB stood at

first position in front of liquidity. Overall

performance table shows that, Andra bank

is ranked first followed by bank of Baroda,

Indian Bank, Corporation Bank and

Panjab, National Bank.

Vijai Shooda (2011) In his A study

compared the deposit and advances of the

Rontak central cp-operative Bank Ltd, and

the Jhajjar central co-operative Bank Ltd.,

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method. He found that deposits were

highly correlated with the Advances;it was

also found that the Jhajjar central

co-operative Bank recorded increasing trend

in mobilization deposits and advancing

credit. But the credit Deposit ration of this

bank recorded fluctuating trend. There was

no trend in deposits, advances and CD

ratio of the Rohtak central co-operative

Bank during the study period and it

recorded fluctuating trendin all three

variables considered for the study They

review of earlier studies has revealed that

the deposit mobilization by bank is more

important fo the economic development of

nation. Hence the present study is

important to examine that growth of

deposits of SBI Group.

Objectives of the Study

The following are the objectives of the

study

1. To compare the branch expansion,

advance, profitability, deposits, non

performing assets, incomes and

investments of public and private

sector banks.

2. To offer suitable suggestions based on

findings of the study.

Research Methodology

The study is based mainly on secondary

data collected from various published

sources. The data required for the study

has been collected from RBI annual

reports, IBA Journals, books and websites.

Period of the Study

This study covers a period of 3 years from

2011 to 2013.

Comparing the branch expansion of public and Private sectors in india

(As on 31st March) (Amount in Rs.Crore )

Year 2011 2012 2013

No of Branches (Private Sector Banks) 10480 12045 13868

No of Branches (Public Sector Banks) 61894 65416 70314

Sources: Primary data

The table indicates that the no of branches is increasing in both sector banks. In 2011 no of

branches of public sector banks were 61894 but private sector banks were 10480. In 2012, the

number of branches of public sector banks was 65416 and private sector banks were 12045.

In 2013 there are 70314 branches of public sector banks and 13868 branches of private sector

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Emperor International Journal of Finance And Management Research [EIJFMR] ISSN: 2395-5929

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Comparing the advances of public and Private sector banks in india

(As on 31st March) (Amount in Rs.Crore )

Year 2011 2012 2013

Advances (Private Sector) (a) 632441 797944 966418

No of branches (b) 10480 12045 13868

Average loan granted per branch (a/b) 60.35 66.25 69.69 Advances (a) (public sector) 2701019 3304433 3878312

No of branches (b) 61894 65416 70314

Average loan granted per branch (a/b) 43.6 50.51 55.16

The above table indicates total amount of advance granted, average loan granted per branch

for three years by both the banks. If we compare total amount then private sector banks

granted more advances. But if average is compare than more loan than public sector banks. In

2011 average of private sector banks were 60.35 crores in case of Private sector banks and

Rs.43.6 crores in case of public sector banks. In 2013, average loan granted by private sector

bank was Rs.69.69 crores and by public sector banks was Rs.55.16 crores only.

Comparing the profitability of public and private sector banks in India

(As on 31st March) (Amount in Rs.Crore )

Year 2011 2012 2013

Net Profit (a) (Private Sector) 13112 17712 22718

No of branches (b) 10480 12045 13868

Average net profit per branch (a/b) 1.25 1.47 1.64 Net profit (a) (Public sector banks) 39257 44901 49514

No of branches (b) 61894 65416 70314

Average net profit per branch (a/b) 0.63 0.69 .70

The above table indicates that from 2011 to 2013 the net profit of public sector banks is more.

But if one sees the average net profit as per branch expansion, the profitability of private

sector banks is more. The public sector banks has average net profit of Rs.0.63 in 2013.

Whereas private sector banks has average net profit of Rs.1.25 crores in 2011, Rs.1.47 crores

in 2012 and Rs.1.64 crores in 2012. So profitability of Private Sector bank is more.

Comparing the NPA of public and private Sector Banks in India

(As on 31st March) (Amount in Rs.Crore )

Year 2011 2012 2013

Net NPA % to net advances (Private Banks) 1.03 0.56 0.46 Net NPA as % to yet Advances (Public

Banks)

1.10 1.09 1.53

The table indicates that in public sector banks percentage of Net NPA to total net advances is

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Emperor International Journal of Finance And Management Research [EIJFMR] ISSN: 2395-5929

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2012. In case private sector banks, there is declining trend. Percentage of NPA in 2010 was

1.03% in 2011, it decline to 0.56% and in 2013 declined further to 0.46% from the above one

can say that private sector bank is better than public sector bank in case of NPA.

Comparing the deposits of public and private Sector banks in India

(As on 31st March) (Amount in Rs. Crore )

Year 2011 2012 2013

Private Sector (a) 822801 1002759 1174587 No of branches (b) 10480 12045 13868 Deposit per branch (a/b) 78.51 83.25 84.70 Public Sector (a) 3692019 4372449 5001743 No of branch (b) 61894 65416 70314 Deposit per branch (a/b) 59.65 66.84 71.13

The table indicates the public sector banks and private sector banks deposits show increasing

trend. Public sector banks accept more deposits than private sector banks. In 2013, the

deposits accepted by public sector banks are Rs.5001743 crores and by private sector banks,

Rs.1174587 crores. But deposits as per branch expansion the profitability of private banks is

more compared to public sector banks. The private public sector banks has deposit per branch

of Rs.59.65 crores in 2010 and Rs.66.84 crores in 2012 and Rs.71.13 crores in 2013. Where

as private sector banks has deposit per branch of Rs.78.51 crores in 2010 and Rs.83.25 crores

in 2012 and Rs.84.70 crores in 2013.

Comparing the income of public and private Sector banks in India

(As on 31st March) (Amount in Rs.Crore )

Year 2011 2012 2013

Total Income (Public Banks) 354876 414099 535098 Total Income (Private Banks) 103220 117586 158478 The table indicates that total income of

public sector banks and private sector

banks showing increasing trend. Private

sector banks earn & more income than

public sector banks. The public sector

banks has total income of Rs.103220

crores in 2011, Rs.117586 crores in 2012,

and Rs.158478 crores in 2012, whereas

public sector banks has total income of

Rs.354876 crores in 2011, Rs.414099

crores in 2012, and Rs.535098 crores in

2012. So total income of private sector

bank is more.

Analysis and Conclusion

As regards branch expansion, acceptance

of deposits from public are investment

public sector banks is better position than

private sector banks. But as regards

average loan granted per branch,

profitability, and percentage NPA, private

banks is better overall it may be concluded

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Emperor International Journal of Finance And Management Research [EIJFMR] ISSN: 2395-5929

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dominant position in number of branches

in all over India but still facing

competition from private sector banks.

Because the public sector banks required

to working in rural areas it resulting in

high per unit transaction costs. So they

should adopt advancement in technology

for overcoming reduction of costs in rural

branches.

References

1. Salam Abdus and kulsum umma (2004), “Saving behavior in India : An empirical Study”. The Indian

Economic Journal. Vol.50, No.1,

PP.26-38.

2. M.Syed Ibrahim (2009), “Credit

Deposit Ratio and Net Interest Margin

(NIM) of Indian commercial Banks –

An Analysis”. SMART journal of

Business Management studies. Vol.5,

No. 2, PP.26-39.

3. Haresh Rarot (2010), “ Impact of

financial reform on banking sector –

evidence from India”. International

Journal of research in commerce &

management. Vol.1, No.8,PP.120-125.

4. K.V.N.Prasad, Dr.D.Maheswara

Reddy and Dr.A.A.Chadri (2011),

“Perormance Evaluation of public

sector banks in India : An Application

of camel model”. International Journal

of Research in commerce &

management. Vol.2,No.6,PP 96-99.

5. Vijay S.Hooda (2011), “Deposit and

Advances of district central

co-operative banks : A comparative

analysis with spearman’s rank correlation”. SMART journal of

business management studies. Vol.7,

No.2, PP.12-19.

6. Vijay S.Hooda (2007) “Deposits and

Advances of district central

co-operative Bank” A Comparative Analysis with spearman’s Rank correlation”. Smart Journal of

Business management studies, Vol.7,

no.2, Pp.13-20.

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