A

Specialization Project Report

On
“A STUDY ON FINANCIAL PERFORMANCE OF PUBLIC SECTOR BANKS IN
INDIA”

In the partial fulfilment of the Degree of

Master of Management Studies

Under the University of Mumbai

By

Mehul Ishwar Parmar

Class: MMS-B & Roll No: 04

Specialization: Finance
Batch: 2019-21

Under the Guidance of

Prof. Kinjal Shethia

ATHARVA INSTITUTE OF MANAGEMENT STUDIES

Malad-Marve Road, Charkop Naka, Mumbai 400 095.
 DECLARATION:

I, the undersigned, hereby declare that the Project Report entitled “A STUDY ON FINANCIAL
PERFORMANCE OF PUBLIC SECTOR BANKS IN INDIA” written and submitted by me to the
University of Mumbai, in partial fulfillment of the requirement for the award of degree of Master of
Management Studies under the guidance of Prof Kinjal Shethia is my original work and the conclusions
drawn therein are based on the material collected by myself.

Place: Student Name:

Date: Signature:
 Introduction

The growth of any economy depends on the strong economic system. within the Indian
context, since the eve of independence the banking institutions are playing a significant
role as a significant contributor to the structural change of the economy. Initially, the public
sector banks were playing both as a catalyst and as active contributors to Indian financial
sector development without profit motive. However, the introduction of economic Sector
Reforms has posed a threat to the survival of the Indian public sector banks thanks to the
entry of origin banks and new generation private sector banks. This, successively has resulted
in the introduction of latest technology in banking and innovative customer services.
Though the post reform measures could show an improvement within the financial
performance and profitability of majority of the Indian banks, a logical question that
arises during this context is that to what extent Indian banks could improve their profitability
and how effectively the banks are ready to utilize the available resources. the current
project is aimed toward examining these issues.

The indigenous system of banking had existed in India many centuries back, in
order to cater to the credit needs of the economy of that point. The famous Kaulilya
Arthashastra, which was ascribed within the 4th century BC, contains references to creditors
and lending. as an example, it says "If anyone became bankrupt, debts owed to the state
had priority over other creditors". Similarly, there's also a relevance "Interest on
commodities loaned' (PRAYOG PRATYADANAM) to be accounted as revenue of the
state. Thus, it appears that lending activities weren't entirely unknown within the medieval
India and therefore the concepts like ‘priority of claims of creditors' and ‘commodity lending'
were the established business practices.

During nation rule, Indian banking was based upon British banking industry.
The initial phase ofthe development ofthe commercial banks in India was regulated and
governed by the archipelago Company's Government, the charter and therefore the
Government of India. It used the services of the Indian banks for the transfer of funds
between India and Britain; hence the Indian banks played only a passive role. However,
the strengthening and regulating of banking industry transpire after the establishment of Reserve
Bank of India in 1935.
During the post independent period the Indian economy has been set within the pace
of rapid development. But Indian economy has been targeted towards achieving the
requisite levels of production and competitiveness to achieve self-reliance. In building India
it was realized that improving the quality ofliving ofthe people was pertinent that
upgradation of technology and effective and efficient manpower are of utmost
importance. Obviously these would force more financial resources, which might play a
significant role in shaping the economy ofa country by judiciously deploying their funds.

In achieving these goals, banks play a prominent role in discharging social

responsibilities i.e., poverty eradication, employment generation, development of
industry and agriculture, re-distribution of wealth and balanced regional development. In
the industrial field banks function an admirer, philosopher and guide to industrial units. They
nurse an oversized number of sick units with a view to enable them to continue their production
and maintain their level of employment. Through their merchant banking division several
banks have entered the sector of commercial finance by seizing underwriting of capital
issues. Hence, any successful plan of a nation requires a considerable expansion together with
qualitative improvements within the operations of the banking industry, in those areas whichare in
priority sector and on which the longer term development of a rustic rests. To quoteBhabha1. “
Banking is that the kingpin of the chariot of economic progress. per se its role in expanding
economy of a rustic like India can neither be underestimated nor overlooked. The success of our
plan depends among other things on the sleek and satisfactory performance ofthe role
by industry of our country".

The year 1969 was a landmark within the history of business banking in India. In
July, the govt. nationalized 14 major commercial banks ofthe country which had a
deposit of a minimum of Rs. 50 Crores each.

The broad objective of nationalization of banks as envisaged within the then Prime
Minister Mrs. Indira Gandhi's broadcast to the state on July 19, 1969 and her statement
in the Parliament on July 21, 1969 were:

”To have a bearing over the commanding heights ofthe economy with a view to
mobilize adequate resources for development and to scale back the inequality among regions.
The expansion of bank credit to priority sectors and inspiring a brand new class of
entrepreneurs through granting liberal credit for brand new schemes. .Giving professional bent
to bank management by appointing professional bankers as Chairmen and Economists,
Chartered Accountants, Lawyers, Agriculturists and little industrialists as members of
the board; and thus, removing control by some big businessmen and industrialists.
Further, the general public ownership of the key banks will help in eliminating the employment of
banks' credit for speculation and unproductive purposes”

On April, 1980 eleven years after the nationalization of fourteen commercial

banks, the govt took over six more scheduled commercial banks each with
demand and time liabilities exceeding Rs 200 crores. the choice to nationalize these
banks was guided mainly by two considerations - first to assist in implementing the 20
Point Programme and secondly to possess more practical control over the credit policy
implementation of the industry as a full. These policies ofthe government have
made complied the scheduled commercial banks to play a catalytic role for development,
without being given consideration to profitability.

Indian Banking has become quite complex and varied. However, at present
there has been a major departure from the banker's earlier role of purveyors of credit
to profit earning. the stress now could be to fulfill the credit gaps both at micro and at macro
levels by ensuring proper and effective use of economic resources in line with the laid
down priorities.

Apart from meeting the credit needs of the economy the activities of the banks, at
present, encompasses advisory and counseling roles in addition as a monitoring function with
a distinct disciplining base. Technology introduction, innovations in commission delivery have
come to the forefront.

However, the tasks of fulfilling the social objectives with a priority on profit
earning are mutually exclusive and opposing. Hence, these banks need to earn reasonable
profits not only to form a contribution to the central exchequer, but also to satisfy their
social responsibilities, otherwise this giant financial edifice will crumble, thereby
threatening the complete economy itself. Although, profits today are not any longer the be-all and
end-all of banking business, any concern for healthy growth, long-term viability and
lasting contribution of banks must accord due emphasis on profitability. Banks in India
are sensitive instruments as they're much receptive public gaze and criticism and if
millions of people addressing banks must still repose their faith and trust in
them, they have to still function viably, efficiently and profitably.