Performance of Public Sector Banks 1 | Debit Card | Credit Card


Prior to the reforms, the banking sector has suffered from lack of competition, low capital base, inefficiency and high intermediation costs. After the introduction of reforms there is an overall improvement in the performance of all the banks in India. The asset quality and capital position of commercial banks has improved significantly. Profitability of the commercial banks has improved despite decline in spread.

The comparative performance of public sector banks, new private sector banks and foreign banks is explained below for the recent years.


Productivity of Commercial Banks: It is analyzed in terms of business per employee, profit per employee and business per branch. Productivity is directly related to profitability.

Business per employee: The business per employee in the public sector banks has increased from Rs. 88.5 lakh in 1997-98 to Rs. 324.1 lakh in 2005-06. But it is still very low as compared to foreign banks and new private sector banks. The business per employee in the foreign banks was Rs. 1012.8 lakh in 2005-06 and it was Rs. 728.9 lakh in the new private sector banks in 2005-06 Years Public Sector Banks New Private Sector Banks 1997-98 2005-06 88.5 324.1 785.9 728.9 Foreign Banks 529.4 1012.8

Source: R.K. Uppal, Indian Banking in the Globalised World, New Century Publications, 2008, P. 79

Profits per employee: The profits per employee is the highest in foreign banks followed by new private sector banks in 2005-06. Per employee profit was Rs. 26.51akh in foreign banks, Rs. 6.3 lakh in new private sector banks and Rs. 2.91akh in the public sector banks in 2005-06. the profits per employee in the public sector banks have increased from Rs. 0.7 lakh in 1997-98 to Rs. 2.9 lakh in 2005-06.

454 lakh in SBI and its associates. P. Uppal. 14. 1. the efficiency and profitability of public sector banks are rising. 2008.3 Foreign Banks 4. lakh) Years 1999-2000 2004-2005 Nationalized Banks 2152 4242 SBI and its Associates 2860 7454 New Sector Private Banks 14989 21656 Foreign Banks 54800 114768 Source: R. This is shown by the following indicators : . 79. 7. liberal policies of RBI. lakh) Years Public Sector Banks 1997-98 2005-06 0. New Century Publications. 2008. (Rs.242 lakh in nationalised banks.656 lakh in new private sector banks and Rs. Rs.5 Source : R. Rs. Indian Banking in the Globalised World. Indian Banking in the Globalised. 4. The per branch business in 2004-O5 was Rs.K Uppal. customer care.7 2. 21. However. Business per branch: The per branch business is lower in public sector banks as compared to new private sector banks and foreign banks. 94. advanced mindset and commitment of employees towards their organization .9 New Private Sector Banks 11. New Century Publications. 2) Profitability of Commercial banks: Analysis of profitability indicators show that foreign banks operating in India and also new private sector banks have been employing their resources more efficiently and possessed greater capacity to generate income as compared to public sector banks.5 26. The productivity was the highest among the foreign banks.4 6.K. P.(Rs.768 lakh in foreign banks.World. It is followed by new private sector banks. The important factors influencing the productivity of foreign banks and new private sector banks are the use of IT.

0 4.9 4.Public sector banks has fallen from 8.1 1.7 2.56 1.0 0.06 2.49 0.09 2.2 1.07 6. -new private sector banks from 8. Interest income 2.0 2.2 7. Interest expended 3. Spread (Net interest income) Source: Economic Survey.09 4.Foreign banks from 9. Intermediation Cost (Operating expenses) 4. Interest income ratio of .8% in 2009-10 and of new private sector banks from 6 percent to 4. 2010-11.06% in 200910.8 1. 101 and 2002-03.6 % in 2000-01 to 2. Interest expended ratio of public sector banks has fallen from 6 percent in 2000-01 to 4.3 5.07% in 2009-10 & . P.6 3.9 Banks 2009-10 6.09 % In 2009-10. Interest expended ratio: Interest expended as percent of total assets has fallen for all the groups of banks during the period 2000-01 to 2009-10 It has fallen substantially for the foreign banks from 5. while the ICRA of new private sector banks has risen during the same period.86 Foreign Banks 2000-01 9.3 percent in 200-01 to 6.8 2. new private sector banks and foreign banks has fallen during 2000-01 and 2009-10.04 0. .88 2.2% in 2000-01 to 7.9 3.4 2.03 1.22 2. Intermediation Cost to Asset Ratio (ICRA): ICRA of public sector banks and foreign banks has fallen during the period 2000-01 to 2009-10.13 New Private Sector Banks 2000-01 2009-10 8.8 percent in 2000-01 to 6. Net Profit / RoA 5. P.2% during the same period. Interest income as percentage of total assets: The interest income ratio of public sector banks.7 0.9% in 2009-10.Profitability Indicators as Percent of Total Assets (Percent) Indicators Public Sector 2000-01 8:8 6. 59.6 2009-10 6.

88 %. the RoA of public sector banks. Spread or Net Interest Margin: Spread is an important indicator of efficiency of banks because it is most important driver of profitability of banks.3 18. In the year 2009-10.1 17.3 15. 2009.3 2010 13. The RoA of all the groups of banks has risen during the period 2000-01 to 2009-10.56 %during the same period. and that of foreign banks from 3 % to 2.1 15 2010 12. The RoA of foreign banks is higher than that of new private sector banks & public sector banks. Website.0 17. new private sector banks and foreign banks has been 0. The spread as percent of total assets of all the groups of banks has risen during 2001-2001 to 2009-10. Return on Assets (RoA) : It is the rate of net profit to total assets.04 % during the same period.5 15. Operations and Performance of Commercial Banks .22 % and 1.49 % 2009-10.The ICRA of public sector banks has fallen from 2.3 18. Financial Soundness: The capital adequacy ratio (CAR) is the most important indicator of financial soundness of banks. ICRA of new private sector banks has risen from 1.3 Source: RBI. Under Basel II Indian banks have to maintain a stipulated minimum CRAR of 9%. However. All commercial banks in India have Basel II compliant as on march 31.3 14.7 % to 2.1 Basel II 2009 13.09 % respectively. Capital to Risk weighted Asset Ratio (CRAR) as at end march Basel I 2009 Public sectors banks New private sector banks Foreign banks 12.7 percent in 2000-01 to 1. 1. 3.

while it has declined in case of new private sector banks. Bank group Total NPAs as Percent to Total advances 2009 1.97 3. This shows the improvement in the efficiency of Indian banks.05 3. . the gross NPA ratio was the highest for foreign banks at the end march 2010 followed by private sector banks. October 22. Customer Services : In order to ease customer’s access to banking facilities.8 1.Under Basel II. New Private Sector Banks 3.19 2.87 4. CRAR of Indian banks has increased from 14 % at the end March 2009 to 14. Indian banks have begun offering bouquet of financial services to their clients.09 1.8 2010 2. The number of branches of PSBs that have implemented CBS increased from 35. It can be seen from that CRAR of foreign banks & new private sector banks is much higher than that of public sector banks. Asset Quality: The asset quality of banks is shown by level of non-performing assets (NPAs) Better quality of the assets is the indicator of efficiency. 'everywhere access' and quick transfer of funds in an efficient manner and at reasonable cost.304 as on March 31. 4.464 on March 31. Public Sector Banks 2. during the post reform period especially since 1999.9 1. 1. The number of branches providing’ core banking solutions' (CBS) is increasing rapidly.8 2010 1. The ratio of net NPAs to net advances and gross NPAs to gross advances have declined in all the banks. 2009. 2008 to 44.1 1. Under CBS.4 1. Foreign Banks Source: RBI Website Operation and Performance of Commercial Banks. a number of services are provided such as 'anywhere banking'.5% at the end of March 2010. There was increase in gross NPA ratio between 2009-2010 in public sector banks and foreign baks.29 Net NPAs as Percent to Net Advances 2009 0. . At the bank group level. 2009.

2009.6 percent for the new private sector banks. 29 percent for State Bank group and 40 percent for nationalized banks in March 2009.The proportion of PSB branches that achieved full computerization increased from 93. The foreign banks and new. Foreign Banks Total Number of ATMs 15.646 1. banks in India are using Information Technology (IT) not only to improve their own internal processes but also to increase facilities and services to their customers.0 296:6 357. October 22. Website. . . ATMs of Commercial Banks (as at end March 2009) Bank Group 1.7 percent as on end March 2008 to 95 percent as on end March 2009. 296. Operations and Performance of Commercial Banks.339 12. Thus.2 29. private sector banks are having larger percentage of ATMs in terms of branches. New Private Sector Banks 4.The bank are providing more and more ATM facilities to customers.938 11. Nationalized Banks 2: State Bank Groups 3.054 ATMs as percentage of Branches 40.3 Source: RBI. The ATM as percentage of branches was 357 percent for the foreign banks.

This has enabled the banks to offer better quality services to customers. In this case. IT Act o 1999 gave new dimensions. phone-banking. The ATM provide a number of services such as withdrawal of cash upto a particular limit. the transaction amount is directly debited to’ the bank account of the customer. They enable the banks to transact more business by offering various services in cost effective way on one side and to get more customer satisfaction on the other.NEW TECHNOLOGY IN BANKING The Information Technology (IT) has changed the structure of Indian Banking: Computerization in banking is taking place all over the world. Smart cards. 2. smart card. The services are delivered to the customers by relying solely on IT. electronic fund transfer. etc. debit card. cheques and drafts. credit card. 3. work culture and human resource development. Debit Card: It is a prepaid card with some stored value: It allows 'anywhere anytime accesses' to the customers' saving or current account. to the Indian baking industry. IT ie . It enables a customer to purchase goods and services within the prescribed limits from authorized outlets without making immediate cash payments. updated balance of customer. The purpose of computerization is to bring technology to the counter and to enable employees to have information at their fingertips. to offer customized products and to manage risks. tele-banking. structure> business process. The most important types of virtual banking services are Automated Teller Machines (ATMs). Virtual Banking: It denotes the rendering of banking and related services through extensive use of IT without direct physical recourse to the bank by the customer. deposit of cash. The important new technologies that are being used by the banks are l. Credit Card: It is "a convenient medium of exchange. has created transformation in banking. Under the regime of banking sector reforms. A Personal Identification Number (PIN) will be issued to the customers for using the debit card. Technology will he key to reduce transaction cost. Internet banking. transfer of money from one account to another accounts. mini account statement and so on. 4.: internet banking and so on. ATMs. . ATMs: ATMs are self service vendor machine that help the banks to provide round the clock banking services to their customers at convenient places without visiting to the bank premises.. It can be used at all outlets that accepts such cards for payments.

Internet banking enables customers to open accounts. irrespective of their location. Phone banking: Under this service a customer can talk to a phone banking officer for transacting a banking business. stop payments. anywhere at any time. It is based on the voice processing facility available on bank computers. . PoS system identifies the cardholder and check whether the customers account has sufficient funds to cover the purchase. transfer funds. It gives everybody with a mobile phone to access banking services. pay bills. . know account balances. The PoS terminals facilitate electronic funds transfer. Under this system. It provides many services such as account balance. Point of Sale (PoS): The PoS terminal is a machine that facilitates transactions through swipe of a card in an online environment.1. Telebanking : It is another form of electronic banking through which banking services or products are rendered through telephone to its customers. Merchant business establishments operate point of sale in their premises in order to accept plastic cards. Mobile banking: It is an extension of internet banking. view and print copies of cheques. It is a 24 hour banking facility to the customer. mobile alerts about credit card or debit card transactions. there is no need for the customer to visit the branch for getting services or products from ' the bank. 5. etc. The customized PoS terminals can support both debt and credit cards and can also be made to support different kinds of plastic including magnetic and smart chip based cards to make the transaction possible. The customer can do entire non-cash related banking services on telephone. Door Step Banking: This means banking services and products made available to a customer at his place of residence or work. 3. Internet Banking: It is also called on-line banking where the traditional banking services are provided through the internet. forward loan application. 4. 2. In this system. mini account statement and so on. 2. a customer can access his account details on a mobile phone by using the Short Messaging Service (SMS) technology.

7. commission. However. Electronic Fund Transfer (EFT): It is an easy and speedy mechanism to facilitate the transfer of funds from one place to another. It brings greater efficiency in the movement of funds: and reduction in risks relating to the transfer of funds. Electronic Clearing Services. insurance premium and repayment of loan installments . Electronic Debit Clearing Service was introduced to facilitate the payment of credit-pull transactions such as payment of utility bills. (ECS) : It is a non-paper based movement of funds. It is an electronic based settlement of interbank and customer based transactions. The number of bank branches providing’ Core Banking Solutions' (CBS) is increasing rapidly in the recent years. The RBI has introduced National Electronic Funds Transfer System (NEFT) in November 2005. pension. they will have to pay greater attention to fool proof security arrangements and systems to "safeguard against frauds. IPO refunds. More and more ATMs are being installed by the banks. Supervision and audit of E-banking will have to be strengthened and vigilance against hackers will have to be increased.. Growing consumer acceptance of e-banking services is forcing the banks to provide internet-banking facilities. as banks expand into virtual banking. The banking sector in India is adapting itself to rapid innovations in technology particularly on the information based technology front to achieve efficiency in providing wide range of products and services to the customers. interest. etc. 8. Real Time Gross Settlement (RTGS) : RBI introduced RTGS system in order to enhance the efficiency of the cheque clearing system. It consists of Electronic Credit clearing service is a reliable device used for bulk and repetitive credit-push payments such as salary. with intra-day collateralized liquidity support from the RBI to the participants of the system.6. . It facilitates the instant transfer of funds from one end to the other. from one branch or the other of the same bank or a different bank not only within the country but also within anywhere else of the world through electronic message. dividend. ECS facility is largely utilized by the public and private ~ limited companies and government departments which make bulk and recurring ~ payments. It enables the customers to transfer money instantly from one bank account to another one of the same or another customer.

new private sectors banks and foreign banks in India . Discuss the measures taken during the first phase of banking sector reforms in India.List of questions What are the functions of commercial banks? Discuss the assets and liabilities of commercial banks. Write short notes on New technology in banking in India Performance of public sector banks. Explain the measures taken during the second phase of banking sector reforms in India. Examine the trade of between banks objectives of liquidity and profitability? Write short note on factor determining liquidity and profitability of a bank.

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