a presentation on the detailed analysis and comparison of public sector banks and private sector banks in India.

1. ECONOMICS
A PROJECT ON:
PUBLIC V/S PRIVATE
SECTOR BANKS IN INDIA
GROUP 6

2. OUTLINE
Sr. No. Content Slide No.
1 About the Structure of Bank 4
2 Public sector bank 11
3 Private Sector Bank 13
4 Difference between Public &
Private Sector Bank
19
5 Competition between Public &
Private Sector Bank
23
6 HDFC v/s SBI 28
7 Government Yojanas 34
8 Graphical Analysis 52
9 Reform effect 57
10 Demonetisation effect 61
11 Conclusion 64

3. WHAT IS BANK?
• A bank is a financial institute that accepts deposits from the public
and creates the credit.
• Bank also provides financial services, such as wealth management,
currency exchange and safe deposit boxes

4. WHAT IS BANKING?
• Banking Regulation Act of India, 1949, defines Banking as “accepting, for the purpose of
lending or of investment of deposits of money from the public, repayable on demand or
otherwise or withdrawable by cheque, draft order or otherwise.” The Reserve Bank of
India Act, 1934 and the Banking Regulation Act, 1949, govern the banking operations in
India.
• Nowadays various other services also offered by banks such as issuance of credit
and debit card, providing safe custody to valuable items, ATM services, online
transfer and payment etc.
• Banking plays silent, yet crucial part in economy; the bank perform financial
intermediation by pooling savings and channelizing them into investment through
maturity and risk transformation, this in turns allows the economy to grow.

5. BROAD CLASSIFICATION OF BANKS IN INDIA
• The RBI: The RBI is the supreme monetary and banking authority in the country and has the responsibility
to control the banking system in the country. It keeps the reserves of all scheduled banks and hence is
known as the “Reserve Bank”.
1. Public Sector Banks:
• State Bank of India and its Associates (8)
• Nationalized Banks (19)
• Regional Rural Banks Sponsored by Public Sector Banks (196)
2. Private Sector Banks:
• Old Generation Private Banks (22)
• Foreign New Generation Private Banks (8)
• Banks in India (40)

6. STRUCTURE OF BANKS IN INDIA

7. MAIN FUNCTION OF COMMERCIAL BANKS
 Acceptance of deposits
 Fixed deposit account
 Saving bank account
 Current account
 General utility function
 Issuing letters of credit, travelers’ cheque
 Underwriting shares and debentures
 Safe custody of valuables
 Providing ATM and credit card facilities
 Providing credit information
 Agency function
Collecting receipts
Making payments
Buy and sell securities
Trustee and executor
 Advancing of loan
 Cash credit
 Call loans
 Over draft
 Bills discounting

8. WHY ARE NEW BANKS NEEDED IN INDIA?
• It is generally accepted that greater financial system depth, stability and
soundness contribute to economic growth.
• Beyond that, for growth to be truly inclusive requires broadening and
deepening the reach of banking.
• A wider distribution and access of financial services helps both
consumers and producers raise their welfare and productivity.
• Such access is especially powerful for the poor as it provides them
opportunities to build savings, make investments, avail credit, and more
important, insure themselves against income shocks and emergencies.

9. EXISTENCE OF PRIVATE SECTOR BANKS
• Private sector banks came into existence to supplement the
performance of Public sector banks and serve the needs of the
economy better.
• As the public sector banks were merely in the hands of the
government, banks had no incentive to make profits and improve the
financial health. Nationalization killed competition and stifled
competition in banking. Banks operated in regulatory environment
with administered rate of interest.

10. PUBLIC SECTOR BANKS
• A bank in which the government holds a major portion of the shares.
• Say for example, SBI is public sector bank, the government holding in this
bank is 58.60%.
• Similarly PNB is a public sector bank, the government holds a stake of
58.87%. Usually, in public sector banks, government holdings are more
than 50 per cent.
• Nationalized banks are public sector banks. In nationalized banks the
government controls the bank.
• However, the government keeps reducing the stake in PSU banks as and
when they sell shares. So to that extent that can also become minority
shareholders in these banks.

11. LIST OF PUBLIC SECTOR BANKS
State Bank of India Punjab & Sind Bank
Dena Bank Bank of Maharashtra
Allahabad Bank Punjab National Bank
Indian Bank Canara Bank
Andhra Bank Syndicate Bank
Indian Overseas Bank Central Bank of India
Bank of Baroda Union Bank of India
Oriental Bank of Commerce Corporation Bank
Bank of India United Bank of India
IDBI Bank UCO Bank
Vijaya Bank

12. PRIVATE SECTOR BANKS
• Private sector banks are banks where greater parts of state or equity are
held by private shareholders not by the government.
• These banks management and controlled by private promoters.
• After the liberalization in the 1990s, the new private sector banks are those
who got their licenses.
• These days there are also payment banks that have come up like Airtel
Bank, apart from the private and public sector banks.

13. LIST OF PRIVATE BANKS IN INDIA
Axis Bank IndusInd Bank
Bank of Rajasthan ING Vysya Bank
Bharat Overseas Bank Jammu & Kashmir Bank
Catholic Syrian Bank Karnataka Bank Limited
Centurion Bank of Punjab Karur Vysya Bank
City Union Bank Kotak Mahindra Bank
Development Credit Bank Lakshmi Vilas Bank
Dhanalakshmi Bank Nainital Bank
Federal Bank Ratnakar Bank
Ganesh Bank of Kurundwad SBI Commercial and International Bank
HDFC Bank South Indian Bank
ICICI Bank Tamil Nadu Mercantile Bank Ltd.
YES Bank

14. PUBLIC SECTOR BANKS AS DEVELOPMENTAL ENTITIES
IMPORTANCE OF PUBLIC SECTOR BANK IN INDIA
• It also acts as the body that carries the objective of the central government by providing facilities to
the people connected with the bank of the various government schemes, loans and pensions.
• Recently the linking of lakhs of people with bank accounts through the ‘Jan Dhan Yojna’
programme is one such example of such objectives of the government, which needs to be fulfilled by
the banks over requirement.
• It is also responsible for the collection of taxes and carrying various developmental schemes for
the underdeveloped.
• It is also responsible for providing banking facility to the rural and sub-urban areas in order to
connect more and more people with their individual bank accounts and increase business of the
banks.
• It is the reason behind the increasing number of rural branches of such nationalized banks over the
country. The motive of public sector banks doesn’t always remains profit making, but they also
see through the developmental aspect of the region they are operating in.

15. PUBLIC SECTOR BANKS AS DEVELOPMENTAL ENTITIES
PUBLIC SECTOR BANK AND ITS PURPOSE
• The expansion of the public sector was aimed at the fulfilment of our national goals, which are,
• Acceleration of the pace of agricultural and industrial development
• Expansion of employment opportunities
• To make the country self-reliant in modern technology and create professional, technological and
managerial cadres so as to ultimately rid the country from dependence on foreign aid.
• Reduction in inequalities of income
• The attainment of self-reliance
• To reduce concentration of ownership and prevent growth of monopolistic tendencies by acting as
effective countervailing power to the private sector
• Removal of regional imbalances

16. PRIVATE SECTOR BANKS AS DEVELOPMENTAL ENTITIES
IMPORTANCE OF PRIVATE SECTOR BANK IN INDIA
• Offering high degree of professionals
• Creating healthy competition
• Encourage foreign investment
• Help to access foreign capital market
• Helps to develop innovation and archive expert

17. PRIVATE SECTOR BANKS AS DEVELOPMENTAL ENTITIES
PRIVATE SECTOR BANK AND ITS PURPOSE
• Capital adequacy norms
• Product innovation
• Use of modern technology
• Risk Management
• Skill and efficiency of Human resources
• CRM (Customer relationship management)
• Asset management are some of the
challenges emerged which are to be
focused by the private sector banks.
• Thus in the developing economy like ours
the private sector banks will help country
grow and prosper.
• The cost reduction techniques and
application of modern technology will help
the growth of private banking sector.
• Customer orientation
• Application of corporate governance

18. MAJOR DIFFERENCES BETWEEN PUBLIC & PRIVATE SECTOR
BANKS
• Shareholders:
• In a public sector bank more than fifty percentage of the stake is held by the Government.
• In a private sector majority of the stake owned to private shareholders.
• Interest Rate: Deposit interest Rates offered by public sector banks are almost the same when
compared to private sector banks. In case of loans, interest rates are marginally lower.
• Fees & Service: Private Sector Banks have made names in providing better service, however, they
charge for the extra services provided by them. Public sector banks fees and charges are less such as
on balance maintenance. A lot of public sector banks are still picking up in the service.
• Customer Base: Mostly public sector accounts are opened for government employees for their
salaries, fixed deposits, lockers etc. Whereas private sector bank in India target company
employees, for their salary accounts, credit cards and net banking.

19. • Other work related benefits
• in case of public sector, the matter of job security is always higher. This is also the case for
individuals with poor performance. But this may not be the case in private sector banks, as
there the job is highly competitive. Only better employees receive bigger pay packages and job
securities.
• Also public sector banks offer their employees with a number of other benefits like, lower
rates on loans, high percentage of interest on deposits, pension packages, and much more. But
a significant hike in salary may still be less frequents an occurrence
• Consider the learning environment
• It is a well-known fact that most public sector banks spend a lot of funds, time and time
training their employees. So this is considered to be an equipped training area for freshers.
The reason behind public bank’s ability to do so is the fact that they have a broader base in
terms of organization and structure.
• On the other hand, private sector banks also concentrate on training and development, but
they also strongly believe in hands-on experience. So the fresh recruits learn a lot from being
on the job and hone their skills with numerous in-house training programs. Another
important point to note here is that private sector banks are also known to send their best
employees to several well reputed management institutes for further training and education.

20. Public Banks Private Banks
Learning
Experience
Invests a lot of time in
employee’s training
Believe in Hands–on experience
Career
Growth
Slow Career Progress Comparatively, career growth is fast
Promotion
Criteria
Promotion is based on
Seniority
Promotion is based on Merit
Salaries Hike is salary is low If you work well, you can expect a
good rise in salary

21. MAJOR DIFFERENCES BETWEEN PUBLIC & PRIVATE SECTOR BANKS
• Comparing financial performance of public and private sector banks In terms of financial performance,
PSU banks lag behind.
• In terms of most of the parameters like non-performing assets and net interest margins, private sector banks
tend to be much better placed. The share prices of these banks are also significantly higher.
• Another important factor is that in terms of capital adequacy as well, as public sector banks are lagging
behind, their private sector banking peers. For example, some of the private sector banks like HDFC Bank
and IndusInd Bank have very low level of non-performing assets, as compared to the public sector or
government owned banks.
• Some of the banks like Bank of Baroda from the government or public sector have reported record losses.
Losses from the steel sector has aggravated the non-performing assets of the public sector banks in India.
• Only recently the government of India decided to infuse fresh capital in some of the government owned
banks. It is hoped that there would be some recovery in the losses and the public sector banks would be
able to compete with the private sector banks in India.

22. COMPARISON BETWEEN PRIVATE AND PUBLIC
SECTOR BANKS
• The Private sector banks introduced the concept of online banking in India. This was mostly
because the private banks were technologically well equipped. Online banking is extremely
common today since you can sit anywhere and go ahead with your banking transactions. You
do not have to personally visit your bank.
• The Private sector banks were using state of the art technology and fully computerized
systems since the time they entered the Indian market whereas the Public sector banks were
not.
• However, despite the technological challenges, the public sector banks in India are still the
preferred destinations for many as they are considered as safer and more trust worthy options
for money deposit.

23. Source: A Profile of Banks, Reserve Bank of India

24. Source: A Profile of Banks, Reserve Bank of India

25. Source: A Profile of Banks, Reserve Bank of India

26. Source: A Profile of Banks, Reserve Bank of India

27. SERVICES OFFERED BY HDFC BANK
• Personal banking: Accounts & deposits, cards,
insurance & investment, loans, ATMs, Forex
Services, Instant Alerts, Mobile, Phone & Net
banking
• Wholesale Banking: This is mainly meant for
banking transactions carried on by the different
government sectors, medium and small sized
enterprises, corporate companies and varied
other financial trusts and institutions.
Investment banking is even a part of wholesale
banking.
• HDFC Bank Mortgage services: (HDFC) Bank
Mortgage Service is leader in the Indian
mortgage market at present with the State Bank
of India (SBI) following the lead.
• Other Services:
• Debt consolidation service
• Home equity loans
• New home loans
• Latest mortgage quotes
• Mortgage refinancing
• Real estate lending
• Personal Loans
• Home Loans
• Loans for Resident Indians and NRIs
• HDFC Auto Loan

29. SERVICES OFFERED BY STATE BANK OF INDIA
• As of 2016-17, it had assets of ₹30.72 trillion (US$460 billion) and more than 14,000 branches, including
191 foreign offices spread across 36 countries, making it the largest banking and financial services company
in India by assets.The company is ranked 232nd on the Fortune Global 500 list of the world's biggest
corporations as of 2016.
• State Bank of India Services are most varied and innovative amongst all its contemporaries. (Banking
Subsidiaries, Foreign Subsidiaries, Non-banking subsidiaries)
• Products & Services
• Personal Banking
• NRI Services
• Agriculture
• International
• Corporate
• SME
• Domestic Treasury

30. SERVICES OFFERED BY SBI
• SBI Retail Banking
• Various Deposits
• Loans
• Banking For Pensioners
• Against Mortgage of Property
• Against Shares & Debentures
• Plus Scheme
• Rates of Interest
• Credit cards
• Insurance
• Mutual Funds
• Loans:
• Home Loans
• Auto Loans
• Education Loans
• Loan to pensioners
• SBI Career Loans
• Easy Travel Loans
• Medi-plus Scheme, and many more

31. WHAT’S YOUR OPINION?

32. Private Sector Banks (ICICI, HDFC,
Citibank etc.)
Public Sector Banks (SBI, PNB etc.)
Processing fees This fee is one of the major difference that I
have seen between public and private sector
banks. Since, most of the private sector bank
depend on the their DSA (Direct selling agents)
to get the loan consumer to their doorstep, they
generally keep this fees high to pay a cut of this
fees to their agents.
On the other hand, public sector banks are
NOT aggressive in entertaining DSAs and
hence have their processing fees generally
low and starts from 0.25% or a fixed
amount.
Paper work, efficiency
and turnaround time
Better management and faster processing times
than their counterparts. Their DSA’s have strict
sales target every month and hence move faster
to improve their performances.
They are NOT bothered about their
performances most of the time. So, they
move a bit slow but are steady in their
process.
Interest rates fluctuation You would have heard that interest rates are
increased by private bank as soon as RBI
(Reserve bank of India) increases its REPO rate,
but do NOT decrease with same speed when
the REPO rate is decreased at least for existing
loan customers.
This is not the case in public sector banks.
They keep same policies for all loan
customers and decreased rate is effective for
existing customers also almost immediately.

33. GOVERNMENT YOJANAS (SCHEMES)
• Jan Dhan Yojna
• Atal Pension Yojna
• HRIDAY – Heritage City Development and Augmentation Yojna
• Sukanya Samriddhi Yojna
• Pradhan Mantri Kaushal Vikas Yojna
• Start-up India
• Digi Dhan Vyapar Yojna and many more

34. WHAT IS PRADHANMANTRI JAN DHAN YOJNA?

35. ABOUT PMJDY
• Under this yojna, anyone who is Indian citizen, above 10 years not having a bank
account, can open their account with zero balance.
• This scheme also provides accidental insurance cover up over 1 lac without any charge
for the account holder!
• Account holders also will be given a RuPay debit card, which can be used at all ATMs.
• So, by this we can say that "Jan Dhan Yojna" is very helpful to the citizend, but there is
NOTHING for bank.
• Public sector banks have to follow the instructions of the government, so they put lots
off efforts in that while private sector banks are not very interested in these kind of
government schemes, because there is no profit in these kind of schemes!

36. RESULT OF PMJDY
• Over 25 crore accounts have been opened under PMJDY and a total deposit of Rs.
44,480 crore have come into these accounts.
• Most of these accounts are from rural areas since public banks arranged special
camps for this yojna.
• Private banks are also asked to hold such camps but they didn’t follow this strictly
and they arranged these kind of camps on paper only!
• So we could say that the government is more reliant on public sector banks for
implementation of their yojnas.

37. PMJDY CAMPS

38. STARTUP INDIA
• Startup India is a flagship initiative of the Government of India, intended to build a strong
eco-system for nurturing innovation and Startups in the country that will drive
sustainable economic growth and generate large scale employment opportunities.
• The Government through this initiative aims to empower Startups to grow through
innovation and design.
• The “Startup” certification is issued by the Government Authority based on defined
norms.
• Banks are an integral part of the Startup ecosystem. Various banks have launched
dedicated policies, schemes, units, loan initiatives and branches exclusively for Startups.
• Hence, the bank has introduced a new MSME Scheme, Union Start-up to provide a
bankable platform for business units identified as Start-up and to meet their need based
requirement.

39. STARTUP INDIA
• Of all these banks, the Union Bank (a public sector bank) is the pioneer for Startup India.
• The attractive features of Union Start-up Scheme are as under:
• Working capital & term loan insurance up to Rs. 5 crore
• Provision for financing soft cost in project cost
• Flat margin of 20% for Working Capital and Term Loan Finance
• 1% concession over applicable Rate of Interest subject to minimum appropriate MCLR
• Low Interest Rates
• No Processing Charge
• Repayment Period for Term Loans up to 120 months

40. STARTUP INDIA
• Even though banks have provided such attractive schemes, this initiative by the
Indian Government failed to attract the start-ups. There were only 1368 applications
in the year 2016, out of which only 502 got approval from the Dept. of Industry Policy
and Promotion.
• The main reason for the failure of this initiative (so far) has been the lack of investors
and the non-existence of a business-friendly environment and not a lack of funds.

41. Here, we can see that
there are not many
investors and bank
funding is significantly
less.

42. HERFINDAHL INDEX RANGE:-
• A HHI index below 100 indicates a highly competitive index.
• A HHI index below 1,500 indicates an unconcentrated index.
• A HHI index 1,500 to 2,500 indicates moderate concentration.
• A HHI index above 2,500 indicates high concentration.
• The Herfindahl index for the public sector banks is 0.1994.
• So, In Banking Industry public sector indicates moderate concentration so the concentration
ratio lies between 0-50%. So it ranges from perfect competition to oligopoly.
• The Herfindahl index for the private sector banks is 0.2442.
• So, In Banking Industry private sector indicates moderate concentration so the concentration
ratio lies between 0-50%. So it ranges from perfect competition to oligopoly.

43. INDUSTRY CONCENTRATION IN PUBLIC SECTOR:
THE HERFINDAHL INDEX
Source: Capital Line Database

44. HERFINDAHL INDEX IN PRIVATE SECTOR
Source: Capital Line Database

45. NET INCOME COMPARISON OF PUBLIC SECTOR
AND PRIVATE SECTOR BANKS (2014)

47. COMPARISON BETWEEN PEERS IN PUBLIC SECTOR
Source: Cline

48. COMPARISON BETWEEN PEERS IN PRIVATE
SECTOR

49. Source: Cline
Number of ATMs of
Public sector bank in
India in 2014 were
much higher than of
private banks.

50. MARKET SHARES OF INDIAN FINANCIAL SECTORS
source: banking structure report by – D. Subbarao
Banks has major
shares in Indian
financial sectors as
compare to mutual
fund, insurance
company, pension
funds etc.

51. MARKET SHARES OF INDIAN BANKING SECTORS
source: banking structure report by – D. Subbarao
Public sector has 67.2
% market shares in
Indian economy while
private sector has just
18.7 %.

52. PRICE TO BOOK RATION
source: banking structure report by – D. Subbarao
Much higher
(approx. 2 to 2.5
times) for private
sector banks as
compare to public
sector bank.

53. NPA (NON PERFORMING ASSET)
• Non Performing Asset means a loan or an account of borrower, which has been
classified by a bank or financial institution as sub-standard, doubtful or loss asset, in
accordance with the directions or guidelines relating to asset classification issued by
RBI.
• NPA accounts are those accounts which do not yield any income or ceased to
generate income for the bank.
• A classification used by financial institutions that refer to loans that are in jeopardy
of default. Once the borrower has failed to make interest or principal payments for
90 days the loan is considered to be a non-performing asset. Also known as non-
performing loan.

54. NPA RATIO OF PUBLIC AND NEW PRIVATE SECTOR
BANKS
source: banking structure report by – D. Subbarao

55. Risk, Business strategy,
HR is quit high in Private
banks as compare to
public banks where as
financial reports and
compliance to too high.

56. REFORM EFFECT
• India's Economic Reforms. The reform process in India was initiated with the aim
of accelerating the pace of economic growth and eradication of poverty. The process
of economic liberalization in India can be traced back to the late 1970s. However,
the reform process began in earnest only in July 1991.
• Nationalised the 14 largest commercial banks with effect from the midnight of 19
July 1969. These banks contained 85 percent of bank deposits in the country. A
second dose of nationalisation of 6 more commercial banks followed in 1980.he
Government of India controlled around 91% of the banking business of India.
• Until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the
average growth rate of the Indian economy.
• In the early 1990s, the then government embarked on a policy of liberalisation,
licensing a small number of private banks .

57. • This move, along with the rapid growth in the economy of India,
revitalised the banking sector in India, which has seen rapid
growth with strong contribution from all the three sectors of
banks, namely, government banks, private banks and foreign
banks.
• The inauguration of the HDFC Bank in Mumbai in 1994. Its first
corporate office and full service branch at Sandoz House, Worli,
was inaugurated by the then Union Finance Minister Manmohan
Singh, the architect of India's liberalisation.
• A commercial banker who started his career in State Bank of
India, Vaghul became the youngest chairman of a state-run lender
- Bank of India - at 44.
• Many financial supermarkets have come into being since
liberalisation in 1991, but the thought leader for all of them was
undeniably Vaghul. If IDBI, UTI and SBI all ventured into various
wings of financial services, they all took a leaf out of ICICI's
strategy authored by Vaghul.

60. EFFECT OF DEMONETISATION ON BANKING
• Demonetisation has resulted in a rise in deposit growth at a time
when banks have reduced interest rates on term deposits. Deposits
rose 13.9% or Rs 12.7 lakh crore to Rs 105 lakh crore against a 10%
rise last year, according data released by the Reserve Bank of India.
• The World Bank today decelerated India's growth for 2016-17 fiscal to
a "still robust" 7 per cent from its previous estimate of 7.6 due to
demonetisation, but asserted that the country would regain
momentum in the following years with 7.6 and 7.8 per cent growth.

61. ADVERTISING
The major objectives for using advertising techniques or campaigns by banks are:
• Making customers aware of the all kinds of services provided by the banks.
• Increase the use of services
• Creation of a proper image about banks and services
• Change customers’ attitudes
• Support personal selling
• Emphasize well service

62. 1

63. CONCLUSION
• In any banking system. no bank, public or private — can survive unless it continuously
strives to transform its organization into a self-governing, self-correcting and self-adjusting
entity.
• For banks to grapple with these problems and manage the nature, stricture and institutional
rigidities need to be eased in two critical areas: comprehensive legal support for recovery of
bad debts and a fundamental change in the pattern of governance for the Public Sector
Banks. While public sector banks are in the process of restructuring, private sector banks are
busy consolidating through mergers and acquisitions (the sector has been recently opened
up for foreign investments).
• It can be concluded from the above report that over last three to four years, the asset quality
has been at the lowest for Indian banks. Public sector banks have taken the biggest hit. The
high exposure of Public sector banks like SBI to corporate loans is one of the reasons for the
stress on the asset quality. The gross Non-performing assets rose sharply from just over 2 per
cent in 2007-08 to 4 per cent (estimated for March 2013), this is a major worry for banks.