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Can Public Sector Banks Compete with Foreign / Private Banks? A Statistical Analysis
Dr. K.S.SRINIVASA RAO Prof. CHOWDARI PRASADAssociate Professor (QM Area) Associate Professor (Finance Area)Official e-mail: srinivas@mail.tapmi.org chowdarip@mail.tapmi.org Personal e-mail:srinirao35@yahoo.com chowdarip@yahoo.co.in
T.A.PAI Management Institute (TAPMI), MANIPAL – 576 104
Udupi District, Karnataka, India, Ph. (Office): 0820 – 257 1358 / 257 3162 / 257 3163
Key Words:
Banking Survey, Efficiency, Financial Strength, Globalization, Profitability,Public Sector, Private and Foreign Banks, Size and Scale, Statistical Techniques, TransitionAnalysis
Topic Area:
Banking
Abstract
The economic reforms in India started in early nineties, but their outcome is visible now.Major changes took place in the functioning of Banks in India only after liberalization. Dueto reforms in the 1990s, the depth and width of financial system in India has improved.Though role of banks as financial intermediaries has reduced gradually, market share of banks continues to remain the largest in the financial market (CRIS INFAC Banking Annual  Review: August, 2002). Increased competition, new information technologies and therebydeclining processing costs, the erosion of product and geographic boundaries, and lessrestrictive governmental regulations have all played a major role for Public Sector Banks in India to forcefully compete with Private and Foreign Banks. For the last five years, several agencies in India started comparing the working of  Industries, B-Schools, Banks, etc. on their performance over the past, through surveys. This, some times gives a feel that pushing a person into waters who has not learnt about swimming and asking him to compete with other professional racers. Keeping this point in mind, theauthors have taken the survey results on banks over a period of time and compared Indian Public Sector Banks among themselves as a closed model and later with other banks as anopen model using various Statistical Techniques like Cluster Analysis.This article deals with clustering the banks during the period of study and then finding out the common features of these clusters. The research also focuses on the factors that made thebanks moving from one cluster to another.
*
Paper
submitted to the International Conference on "
Business & Finance
" to be heldduring 15-16, December 2003 at ICF AI Business School,
Hyderabad.
 
1.
Introduction
Banking in India was defined under Section 5(A) as "any company which transacts banking, business" and the purpose of banking business defined under Section5(B),"accepting deposits of money from public for the purpose of lending or investing,repayable on demand through cheque/draft or otherwise". In the process of doing theabove-mentioned primary functions, they are also permitted to do other types of businessreferred to as Utility Services for their customers (Banking Regulation Act, 1949).During Britishers' time, three Presidency Banks were opened in Bengal (1809), Bombay(1840) and Madras (1843) with powers to issue Notes. In the year 1921, due to bankingcrisis during First World War, the three Presidency Banks merged to form Imperial Bank of India. In the year 1955, after Independence, Imperial Bank of India was nationalized andrenamed as State Bank of India (SBI) with a primary mandate to go to rural areas byopening at least 400 branches immediately. In the year 1957, the seven banks that wereearlier catering to the rulers of different areas or States viz., Patiala, Bikaner, Jaipur, Indore,Saurashtra, Hyderabad, Mysore, Travancore, became subsidiaries of SBI. In 1969 and1980, Government of India nationalized 14 and 6 major banks respectively. After themerger of New Bank of India with Punjab National Bank during the era of Financial Sector Reforms, the number of PSBs became 27, which are under present study.The type and nature of businesses handled by the Public Sector Banks have not been merelyconfined to primary functions. Class Banking was replaced with mass banking primarily bythe Public Sector Banks by opening branches in remote parts of the country even without basic amenities of life. Profit was not the motive for these bank branches for about 3decades. Their personnel undertook barefoot banking in godforsaken areas and implemented2
 
various poverty alleviation schemes as directed by Reserve Bank of India (RBI) or Government of India and Sate Governments concerned. The authorities were confident of delivering credit to the needy masses through the channel of Public Sector Banking in thename of "Priority Sector Advances" combining the subsidy or margin money supportedschemes. All these were aimed at generating income or employment to large number of ruralmasses comprising weaker sections of society, artisans, agriculturists and self-employed persons including educated unemployed youth (Chowdari Prasad, 2002).In India, till the eighties, the banks operated in a protected environment characterized byadministered interest rates, high levels of pre-emption in the form of reserve requirementsand directed credit. Financial and Banking sector reforms were initiated in India in 1991against the backdrop of challenges faced by the Indian banks from within and outside the banking system in the country as well as forces of globalization operating worldwide. Theaccent of the reform process was to improve productivity and efficiency of the financialsystem and to provide a highly competitive environment.In the present scenario of banking industry, competition among the banks is very severe.The banks have been trying to find new avenues not only to retain the present customer strength but also attracting new customers by offering hassle-free services. In the process,strategies of certain banks, specially Public Sector Banks, are aiming to divide customersinto different segments on the basis of the type of service they would like to render and alsotrying to segregate their servicing counters in their respective branches to enable customer to have easy access to a particular transaction (Srinivasa Rao,K.S. and Rama Rao,U.,1998).3
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missu_forever

plzzzzzzz mail this report..........on my id missu.forever@yahoo.com

reply02 / 09 / 2010
nidhistary

KINDLY MAIL ME THIS ARTICLE AT mamtave@gmail.com

reply11 / 13 / 2009
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