Public vs private sector banks in india

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 ”. Public Sector Banks: State Bank of India and its Associates (8) Nationalized Banks (19) Regional Rural Banks Sponsored by Public Sector Banks (196) 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 B anks 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 . R eduction in inequalities of income T he 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 R emoval 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 P roduct innovation U se of modern technology R isk M anagement S kill 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

28. 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

29. 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

30. What’s your opinion?

31.   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.

32. Government Yojanas (schemes) Jan Dhan Yojna Atal Pension Yojna HRIDAY – Heritage City D evelopment and A ugmentation Y ojna Sukanya Samriddhi Yojna Pradhan Mantri K aushal V ikas Y ojna Start-up India Digi Dhan Vyapar Yojna and many more

33. What is PradhanMantri Jan Dhan Yojna ?

34. 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!

35. 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 yojna s .

36. PMJDY Camps

37. 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 .

38. 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

39. 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.

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

41. 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.

42. Industry Concentration In Public Sector: The Herfindahl Index Source: Capital Line Database

43. Herfindahl Index in P rivate S ector Source: Capital Line Database

44. Net Income Comparison of Public Sector and Private Sector Banks (2014)

45. Comparison between Peers in Public Sector Source: Cline

46. Comparison Between Peers in P rivate Sector

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

48. Market shares of I ndian F inancial 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.

49. 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 %.

50. 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.

51. 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.

52. NPA ratio of public and new private sector banks source: banking structure report by – D. Subbarao

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

54. 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 .

55. 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 .

56. 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.

57. 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

58. 1

59. 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.

60. Thank You!