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Foreign vs. Public Sector Banks in India

The document discusses the operations of public sector banks and private banks in India. It notes that while public sector banks still have issues with computerization and high costs, private banks have emerged stronger with technologies like ATMs and phone banking. Specific problems for public sector banks are high non-performing assets, declining margins, and lack of quality assets. The government aims to lower its stake in public sector banks but retain control, which may not solve the current problems faced by these banks. Private banks regulate themselves and have seen strong profit growth in recent years through non-traditional sectors.

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ANKIT SINGH
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111 views3 pages

Foreign vs. Public Sector Banks in India

The document discusses the operations of public sector banks and private banks in India. It notes that while public sector banks still have issues with computerization and high costs, private banks have emerged stronger with technologies like ATMs and phone banking. Specific problems for public sector banks are high non-performing assets, declining margins, and lack of quality assets. The government aims to lower its stake in public sector banks but retain control, which may not solve the current problems faced by these banks. Private banks regulate themselves and have seen strong profit growth in recent years through non-traditional sectors.

Uploaded by

ANKIT SINGH
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

The operations of foreign banks, though similar to that of other commercial Indian

banks, are mainly confined to metropolitan areas. Foray of foreign banks depends on

reciprocity, economic and political bilateral relations. An inter-departmental committee has

been set up to endorse applications for entry and expansion. Foreign banks, in the wake of

the liberalization era, are looking to expand and diversify. Some of the leading foreign banks

that operate in India are Citibank, Standard Chartered Grindlays Bank, Hong Kong Shanghai

Banking Corporation, Bank of America, Deutsche Bank, Development Bank of Singapore and

Banque National De Paris.

PUBLIC SECTOR BANKING – AT A DISADVANTAGE

Functioning of Public Sector Banks (PSBs), which are yet to achieve computerization

across the board, is at a relative disadvantage when compared to the private sector, which is

offering state-of-the-art facilities such as ATMs, doorstep banking, banking on phone, and

net banking. PSBs also suffer from huge costs of labor and low levels of automation. At this

rate, it may not be long before new channels devised by private banks effectively surpass the

number of branch networks offered by the PSBs.

This apart, the problems which have assumed enormous proportion today as far as

Public Sector banks are concerned are ballooning NPA levels, declining margins, poor credit

off-take, high overheads, and lack of good quality assets. Banks are sticking to reliable

borrowers for fear of bad debts. In fact, banks largely invest in government securities, which

have zero risk. With GOI being the single largest borrower, the yields on these securities

determine the interest rates.


The government aims to decrease its shareholding in PSBs to 33%, however, at the

same time it also wants to retain the controlling stake. This, it is feared, is not going to solve

the problems which PSBs are coping with now.


PRIVATE SECTOR BLOOMS

Corporate governance and self-regulation are the ground rules for the private sector.

Government interference is not preferred. While some private banks such as ICICI Bank, UTI

Bank and IDBI Bank have financial institutions backing them, others are opting for foreign

partnerships for technology and monetary resources.

Private banks have emerged relatively strong, with about 60% growth reported in

net profits in the year ended March 2000. With a net profit of Rs.120 crores (+46%), HDFC

was the clear leader. IDBI Bank, however took the cake by doubling its net profit, which

reached Rs.60.99 crores in March [Link] jump in profits can mainly be attributed to non-

traditional sectors such as commission, exchange, brokerage, and profit on sale of

investments.

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