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Private Sector Banks in India - A SWOT Analysis
Prof. CHOWDARI PRASAD Dr. K.S.SRINIVASA RAOAssociate Professor (Finance Area)Associate Professor (QM Area)Official e-mail:chowdarip@mail.tapmi.orgsrinivas@mail.tapmi.orgPersonal e-mail:chowdarip@yahoo.co.insrinirao35@yahoo.com
T.A. Pai Management Institute (TAPMI)
MANIPAL – 576 104Udupi District, Karnataka, India.Tel. (Office): 0820 – 257 1358 / 257 3162
Topic Area:
Banking
Introduction:
Private Sector Banks existed for over a century in India. Formation of State Bank Group in 1955/ 1957 and two nationalizations in 1969 and 1980 lead to dominant Public Sector Banks.Economic reforms in 1991 and Banking Sector Reforms again in 1997-98 have changed the banking scene totally. People generally rely on nationalized banks backed by Government.Change in mindset of the customers forced RBI to allow new private banks a decade back.World Trade Organisation (WTO) and globalization initiated more foreign banks to addcompetition and a proper level playing field.It is pertinent and appropriate to mention that Imperial Bank of India was also a large privatesector bank but handling all the commercial banking business as well as treasury related work of Government until Reserve Bank of India (RBI) was formed in the year 1934, once again as a private bank! It was in the post independent era in the year 1948 that RBI itself was convertedinto a fully state-owned bank followed by formation of State Bank of India in 1955. The debateabout whether RBI is fully autonomous is inconclusive even today as it operates as the country’scentral bank and also advises the Government on monetary and fiscal matters but implements the1
 
welfare oriented policies as far as regulating the commercial banks are concerned, irrespectivewhether these banks are in public, private, cooperative or foreign sector.Prior to the first major nationalization of 14 banks in July 1969, private capital called the shots incommercial banking. The Tatas owned Central Bank of India, the Birlas – the UnitedCommercial Bank (UCO Bank now) and so on. The policy of Social Control of banks in India in1969 brought in a different turn but in retrospect, it is evident that political motives dominatedthe decision about the two nationalizations. Large scale branch expansion, mass recruitment of staff to take banking to grass root levels, directed investments and credit programmes,administered interest rate regime, credit dispensation towards poverty alleviation programmesthrough loan melas, etc ruled the roost in the Indian banking scene for over two decades.
The Thirty Private Sector Banks today:
During the mid-eighties, the scenario changed both at political front and the banking system inIndia. Productivity, Profitability, Professionalism, Introduction to Technology, Competition from private sector, innovation of new products and services, etc have set in and necessitated dramaticchanges beginning with Financial Sector Reforms in 1991. Public Sector Banks started declaringlosses and experiencing the need for total change in their working and preparing to face stiff competition from new generation banks permitted to start in mid-nineties after introducingPrudential Norms for the banking system in 1993. PSBs and Old Private Sector Banks realizedtheir new role but also welcomed the new generation banks like Bank of Punjab, HDFC Bank,IDBI Bank, ICICI Bank, Centurion Bank, UTI Bank, IndusInd Bank, Times Bank, etc. Thesenew banks had the advantage of starting with a clean slate, adequate capital resources, welltrained and professional man-power, absence of Non Performing Loans in their books,2
 
computerization, lean organizational system, handful of branches in chosen centres, a newvariety of products and services, etc.Formation of WTO in January 1995 and India’s commitment to open up financial services toGlobal players had also brought in many Foreign Banks to open their Offices and expand branches, offering new range of products and services, through ATMs and Electronic services,Credit Cards and Portfolio Management for High Networth Individuals and Corporate customers.An entirely new level playing field was created to accept perfect competition among all types of  banks in the country, particularly in Metro and Urban centres. Amidst the transition fromtraditional and controlled banking system, the old Private Sector Banks which were carrying ontheir business within limited area of operation also started feeling the heat both from the re-charged PSBs and new Private Sector Banks besides Foreign Banks. The latest new private banks to enter the scene are Kotak Mahindra Bank in March 2003 and YES Bank in September 2004.
Table No. 1 Performance Data of all Private Sector Banks in India as on March 31, 2004(Rs. in Crores)S NoFinancial Indicator21 OldPrivate Banks9 NewPrivate BanksTotal 30Private Banks
01Deposits1,09,805.461,58,743.802,68,549.2602Investments 49,545.70 85,255.331,34,801.0303Advances (Credit) 58,232.66 1,12,666.531,70,899.1904Total Assets 1,26,093.19 2,41,183.133,67,276.3205Gross NPAs 4,609.63 5,771.17 10,380.8006Net NPAs 2,142.07 2,664.40 4,806.4707Interest Income 9,472.8416,068.95 25,541.7908Other Income 2,519.31 5,092.23 7,611.5409Total Income11,992.1521,161.18 33,153.3310Interest Expended 6,238.6811,291.32 17,530.0011Operating Expenses 2,503.52 4,911.07 7,414.5912Total Expenditure 8,742.20 16,202.39 24,944.5913Operating Profit 3,249.89 5,116.35 8,366.2414Provisions/Contingencies 1,786.06 2,941.14 4,727.203
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