This document provides an overview and analysis of public sector banks, private sector banks, and foreign banks in India from 2010-2011 to 2014-2015. It summarizes the origin and role of public sector banks in India and compares their financial performance to private and foreign banks in key metrics like deposits, credit disbursal, credit-deposit ratios, profitability, and non-performing assets. The analysis finds that public sector banks attract more deposits but have higher non-performing assets, while private banks are growing their loan portfolios more rapidly but have stronger asset quality.

1. MACRO ECONOMICS PROJECT
TOPIC: COMPERATIVE PERFORMANCE OF PUBLIC SECTOR BANKS
AND PRIVATE SECTOR BANKS FROM YEAR 2010-2011 TO 2014-2015
SUBMITTED BY:
ASHISH PANDEY(16DM046)
ARVIND SHARMA (16DM045)
CHEENU KANSAL (16DM061)
ADITYA VARDHAN(16DM010)
ANSHUL MASIH (16DM032)
ALLAM DIVYA SANJANA (16DM018)
SUBMITTED TO:
Dr. Jagdish Shettigar

2. ABSTRACT
Banks are backbone of any economy. With the debut of multinational private sector banks,
banking sector is facing stiff competition and a thirst to enhance their service quality in
order to gain a competitive edge over their customers. Public sector banks are facing stiff
challenges from the private sector banks and are under tremendous pressure to cope up
with the facilities provided by the multinational banks. While public sector banks have an
advantage of perception and strong rural network private sector banks have better services
and amenities. Our study was aimed at comparing public sector and private sector on the
criteria of public perception, financial performance and economic indicators like
profitability, growth and assessing their compliance to government obligations pertaining to
each sector. This analysis also illuminates the impact of banking sector on GDP of India and
also gives us a base to forecast the scenario of Indian banking sector.

3. Index
1. BACKGROUND OF PSBs
 Origin
 Number of PSBs
 Contribution to GDP
2. Opening up of private banks and entry of foreign banks (business volume
w.r.tPSBs)
3. Financial performanceof the 3 banks in given parameters:
 Deposit
 Credit
 Credit to depositratio
 Profitability and dividend payment
 NPAs
4. Policy obligation on PSBs as compared to Privatebanks.
5. Conclusion

4. Public Sector Banks (PSBs) in India
Public Sector Banks (PSBs) arethe banking corporations, which arelisted on
the stock exchanges and more than 50% stakeis held by the government.
There are a total of 27 PSBs in India [21 nationalized banks + 6 state banking
groups (SBI +5 associates)]
In 2011, IDBI bank and in 2014 Bharatiya Mahila Bank were nationalized with a
minimum capital of Rs.500 crores.
Backgroundof public sector banks in India
The Central Governmententered the banking industry with the nationalization
of the ImperialBank of India in 1955 as 60% stakewas acquired by the Reserve
Bank of India and the new bank was named as the State Bank of India. The
seven other state banks became the subsidiaries of the new bank when
nationalized on 19 July 1960.
The next major nationalization of banks took place in 1969 when the
Governmentof India, under prime minister Indira Gandhi, nationalized
additional 14 major banks.
The next round of nationalization took place in April1980. The government
nationalized six more banks. The total deposits of these banks amounted to
almost Rs.200 crores. This moveled to a further increasein the number of
branches in the market, increasing to 91% of the total branch network of the
country.
Objectives behindnationalizationwere:
 To break the ownership and control of banks by a few business families.
 To prevent the concentration of wealth and economic power.
 To mobilize savings frommasses from allparts of the country.

5.  To cater to the needs of the priority sectors.
Some of the public sector banks in India are namely:
NAMEOF THE BANK YEAR OF ESTABLISHMENT
1. STATE BANKOF INDIA 1806
2. BANKOF INDIA 1906
3. BANKOF BARODA 1908
4. PUNJAB NATIONAL BANK 1894
5. ALLAHABAD BANK 1865
Private Sector Banks in India
The private-sector banks inIndia representa partof the Indian banking
sector that is made up of both private and public sector banks. These are the
banks, wheregreater parts of stake or equity are held by the private
shareholders and not by the government.
Banking in India has been dominated by public sector banks since the 1969
when all major banks werenationalized by the Indian Government. However,
since the liberalization in the governmentbanking policy in the 1990s, old and
new privatesector banks re-emerged. These banking organizations havegrown
faster & bigger over the two decades since liberalization using the latest
technology, providing contemporary innovations and monetary tools and
techniques.
The private sector banks aresplit into two groups by financial regulators in
India, old and new. The old private sector banks existed prior to the
nationalization in 1969 and kepttheir independence because they were either
too small or specialist to be included in nationalization. The new private sector
banks are thosethat havegained their banking license sincethe liberalization
in the 1990s.

6. Oldprivate-sector banks
The banks, which were not nationalized during 1969 and 1980, areknown to
be the old private-sector banks. Thesewere not nationalized, becauseof their
small sizeand regional focus.
Some of the old private-sector banks in India
Name of the bank Year of establishment
1. CenturionBank of Punjab 1943
2. City Union Bank 1904
3. Dhanlaxmi Bank 1927
4. Federal Bank 1931
5. ING Vysya Bank (mergedwithKotak) 1930
New private-sector banks
The banks, which came in operation after 1991, with the introduction of
economic reforms and financial sector reforms arecalled "new private-sector
banks". Banking regulation act was then amended in 1993, which permitted
the entry of new private-sector banks in the Indian banking sector. However,
there were certain criteria set for the establishment of the new private-sector
banks, someof thosecriteria being that the bank should have a minimum net
worth of Rs.200 crores.
Some of the new private-sector banks in India
Name of the bank Year of establishment
6. ICICI BANK 1996
7. INDUSLAND BANK 1994
8. KOTAK MAHINDRABANK 2003
9. YES BANK 2005
10.HDFC BANK 1994

7. Foreign Banks in India
Foreignbanks are those banking organizations which havebranches in India
but were incorporated outside India, and have their head offices in their home
country. These banks wereallowed to set up their subsidiaries in India from
the year 2002 as a resultof globalization. Foreign banks have to operate under
all the rules and regulations laid down by the ReserveBank of India. They have
to pay more attention to the priority sector by giving them a special place in
bank lending. The foreign banks can operate in India only, if they have a sound
financial status.
Foreign banks have played an important role in the Indian economy, especially
in the priority sectors. Globalization has compelled the banking sector to reach
out to more customers in order to expand their business. Theforeign banking
institutions opened up branches across theglobe to serve large number of
customers and also improvethe overallcustomer serviceexperience. And
currently, they are booming in India. Foreign Banking organizations bring more
FDI (Foreign DirectInvestment) and FII (Foreign InstitutionalInvestment) to the
country, contributing to the GDP (Gross Domestic Product) of the country and
induce economic growth.
The Foreign Banks are performing better in commercial banking and
investment banking in India as compared to retail banking due to their less
complex policies and procedures, highly skilled workforceand a huge
knowledgebase.
Some of the ForeignBanks operating inIndia are namely:
Name of the bank Country of origin
1. Standard CharteredBank London
2. Citibank New York
3. HSBC Hong Kong

8. 4. Deutsche Bank Germany
5. Royal Bank of Scotland England
Reasons for foreignbanks toenter India:
- GDP of the country is growing at a robustpace of 7% approximately, throwing
up opportunities for the banking sector to profit from.
- The credit of the banks has risen by over 25% in 2004-05 and further growth
is expected to continue over the upcoming years.
- The growth of the Indian economy has provided the foreign banks an
opportunity for business expansion.
- RBI is following a liberal branch licensing policy for those foreign banks who
want to focus on the unbanked pockets in the country. The foreign banks have
started sensing enormous business opportunities in financing trade and small
and medium sectors in small towns in the world's second fastestgrowing
economy.

9. FINANCIAL ANALYSIS:
The financial performance of the varioussectorsof banking industry canbe compared intermsof:
- Depositsattracted
- Creditdisbursal
- Credit-DepositRatio
- ProfitabilityandDividendpayments
- Non-PerformingAssets
A) DEPOSITS (rupeesinmillions)
CATEGORY YEARS/
BANKS
2015 2014 2013 2012 2011
PUBLIC
SECTOR
BANKS
BANK OF
BARODA 6,175,595 5,688,944 4,738,833 3,848,711 3,054,395
PUNJAB
NATIONAL
BANK 5,013,786 4,513,967 3,915,601 3,795,885 3,128,987
STATE BANK
OF INDIA 15,767,932 13,944,085 12,027,396 10,436,474 9,339,328
PRIVATE
BANKS
AXIS 3,224,419 2,809,446 2,526,136 2,201,043 1,892,378
HDFC 4,507,956 3,673,375 2,962,470 2,467,064 2,085,864
ICICI 3,615,627 3,319,137 2,926,136 2,555,000 2,256,021
FOREIGN
BANKS
CITI BANK 889,120 783,130 665,594 646,977 566,681
HSBC 852,555 717,275 568,660 614,233 541,067
STANDARD
CHARTERED
BANK 728,483 721,115 621,487 639,647 584,191
- In reference to the above table, the Public Sector Banks (PSBs) receives a high amount of
deposits from the public as compared to their private and foreign competitors.
- The State Bank Group holds the highest amount of deposits in the banking industry due to
its subsidiaries and stature.

10. - However, the Foreign Banks are facing difficulties in attracting deposits from the public
due to relatively lower interest rates and less presence in the market.
- The Private Banks in India have been able to attract less deposits as compared to the PSBs
as they are more volatile and prone to market and economic fluctuations.
B) LOANS / CREDIT DISBURSAL (rupeesinmillions)
CATEGORY YEARS/
BANKS
2015 2014 2013 2012 2011
PUBLIC
SECTOR
BANKS
BANK OF
BARODA 4,280,651 3,970,058 3,281,858 2,873,773 2,286,764
PUNJAB
NATIONAL
BANK 3,805,344 3,492,691 3,087,959 2,937,748 2,421,067
STATE BANK
OF INDIA 13,000,264 12,098,287 10,456,166 8,675,789 7,567,194
PRIVATE
BANKS
AXIS 2,810,830 2,300,668 1,969,660 1,697,595 1,424,078
HDFC 3,654,950 3,030,003 2,397,206 1,954,200 1,599,827
ICICI
3,875,221 3,387,026 2,902,494 2,537,277 2,163,659
FOREIGN
BANKS
CITI BANK 608,963 565,193 520,355 471,030 405,970
HSBC 466,172 402,057 357,087 355,123 274,006
STANDARD
CHARTERED
BANK 684,020 684,227 619,543 555,700 492,008
- The PublicSectorBanksget financial supportfromthe governmentintermsof equityandother
formsand theyare able toissue loanstothe publicatrelativelylowerinterestrates,hence the
creditdisbursal isthe highestforPSBs.
- The publicpreferstotake loansfromPSBs because periodof loansissuedbyPSBsislongerand
rangesbetweensevenandnine years,andthe amountof instalmentsislowerandgenerallypayable
on a monthlybasisascomparedto private andforeignbanks.
- The private sectorbanksare alsodemonstratinggrowthtrendsintermsof loans,astheyare
focussingmore andmore on introducinginnovativeschemesandrepaymentmethodsforthe public.
- The Foreignbanksare more focussedtowardsinstitutional bankingthanretail banking,thustheir
creditdisbursal iscomparativelylow.

11. C) CREDIT-DEPOSIT RATIO: (inpercentage)
CATEGORY YEARS/
BANKS
2015 2014 2013 2012 2011
PUBLIC
SECTOR
BANKS
STATE BANK
OF INDIA 82.45 86.76 86.94 83.13 81.03
BANK OF
BARODA 69.32 69.79 69.25 74.67 74.87
PUNJAB
NATIONAL
BANK 75.90 77.38 78.86 77.39 77.38
PRIVATE
BANKS
AXIS 87.17 81.89 77.97 77.13 75.25
HDFC 81.08 82.49 80.92 79.21 76.70
ICICI
107.18 102.05 99.19 99.31 95.91
FOREIGN
BANKS
CITI BANK 68.49 72.17 78.18 72.80 71.64
HSBC 54.68 56.05 62.79 57.82 50.64
STANDARD
CHARTERED
BANK 93.90 94.88 99.69 86.88 84.22
The Credit-DepositRatioisacommonlyusedstatisticforassessinga bank'sliquiditybydividingthe
bank'stotal loansbyits total deposits.Thisnumberisexpressedasapercentage.If the ratiois too
high,itmeansthat the bank maynot have enoughliquiditytocoveranyunforeseenfund
requirements,andconversely,if the ratioistoolow,the bank maynot be earningas much as it
couldbe.
The Credit-DepositRatioforthe PSBs and the ForeignBanks israngingbetween 55to 85%, suchthat
the PSBs have beenmaintainingtheir fundsefficiently,whereas,the private sectorbankslikeICICI
have beenlendingmore thantheirtotal depositsinanyear,demonstratinginefficientfund
management.

12. D) NON-PERFORMING ASSETS: (rupeesinmillions)
CATEGORY YEARS/
BANKS
2015 2014 2013 2012 2011
PUBLIC
SECTOR
BANKS
STATE BANK
OF INDIA 275,906 310,961 219,565 158,189 123,469
BANK OF
BARODA 80,695 60,348 41,920 15,436 7,909
PUNJAB
NATIONAL
BANK 153,965 99,170 72,365 44,542 20,386
PRIVATE
BANKS
AXIS 13,167 10,246 7,041 4,726 4,104
HDFC 8,963 8,200 4,690 3,523 2,964
ICICI
62,555 32,980 22,306 18,608 24,074
FOREIGN
BANKS
CITI BANK 2,449 7,013 7,667 4,238 4,928
HSBC 2,381 976 1,190 2,203 2,487
STANDARD
CHARTERED
BANK 2,306 3,063 10,098 3,868 1,319
- The PSBs face highvolume of NPAsasthe large corporations take loansand thengo for
restructuringmanytimestopassseveral yearsandthenfinallypaylessamountorfile bankruptcy.
- The verificationprocessinthe loanapplicationisnotrobustandneitheristhe recoveryforthe
publicsectorsbanks.Andalso,afterthe loanisdispensed,thereisnofollow upandnorecovery
mechanism.
- PSBsalsoface policyobligationsfromthe governmentrelatingtofinancingacertainfixed
percentage of the total creditto the prioritysectorandthisleadsto the rise inthe NPA of the PSBs
due to casual approach of borrowers.
- The private sectorbankshave a riskcontrol unitand thirdpartyreviewstocheckthe credentialsof
the borrowers. Theyalsoperformthoroughcreditanalysisof the applicantbefore issuingthe funds,
thusthe private sectorbanksface comparativelylessissuesintermsof Non-PerformingAssets.
- Andthe ForeignBanksare alsoverycareful while disbursinganycreditstothe publicandperform
creditcheckson the applicant’sfinancialhistory,leadingtoa verylow percentage of NPAs.

13. E) PROFITABILITY: (rupeesinmillions)
CATEGORY YEARS/
BANKS
2015 2014 2013 2012 2011
PUBLIC
SECTOR
BANKS
STATE BANK
OF INDIA 131,016 108,912 141,050 117,073 82,645
BANK OF
BARODA 33,984 45,411 44,807 50,070 42,417
PUNJAB
NATIONAL
BANK 30,616 33,426 47,477 48,842 44,335
PRIVATE
BANKS
AXIS 73,578 62,177 51,794 42,422 33,885
HDFC 102,159 84,784 67,263 51,671 39,264
ICICI
111,754 98,105 83,255 64,653 51,514
FOREIGN
BANKS
CITI BANK 34,226 28,927 27,183 19,220 14,246
HSBC 16,294 14,903 19,357 19,877 15,276
STANDARD
CHARTERED
BANK 30,514 15,841 29,602 17,358 20,593
The profitability of the public sector banks was largely impacted on account of slowing
economy leading to weakening of income profile, pressure on margins and higher
provisioning on account of weakening asset quality. Public sector banks other than the State
Bank of India (SBI) group reported de-growth. Also, the PSBs have faced an increase in the
NPAs and they many of the public sector banks are also reporting low dividend pay-outs.
On the other hand, the private sector banks continued to show stable growth in income and
were able to maintain profitability and asset quality. This has been achieved in a growing
market indicating that private bank have successfully capitalized on the growth of the Indian
economy. But more than acquiring market share the real contribution of private sector
banks has been to transform the way banking is done in India. The study revealed that ICICI
performed better amongst the private sector banks. And also, most of the private sector
banks have displayed a positive trend in terms of their dividends paid to the shareholders.
Access to low cost of funds by foreign banks is the most important factor which is making a
difference to the profitability of foreign banks vis-à-vis other bank groups in India. Another
major factor determining the profitability of FBs is diversification of income achieved by
them .CITI BANK recorded comparatively higher profitability amongst the foreign banks.

14. DIVIDEND PAYOUT: (rupeesinmillions)
CATEGORY YEARS/
BANKS
2015 2014 2013 2012 2011
PUBLIC
SECTOR
BANKS
STATE BANK
OF INDIA 26482 22397 28387 23487 19050
BANK OF
BARODA 8517 10837 10596 8123 7534
PUNJAB
NATIONAL
BANK - 3621 9544 7462 6970
PRIVATE
BANKS
AXIS 13090 11011 9872 7701 6704
HDFC 20060 16482 13136 10112 7703
ICICI
29018 26023 23075 19025 16148
Policy Obligations onPublic Sector Banks as comparedto Private Banks:
Governmentpolicies play a very important role in the functioning of public
sector banks, such as:
CREDIT DISBURSAL
Governmentimpose rules on the PSBs to finance a certain fixed percentage of
the total credit to the priority sector and this leads to the risein the NPA of the
PSBs due to casual approach of borrowers. Whereas, thesepolicies are not
imposed on private banks, as a result the NPA figures in the private banks are
much less than that of PSBs.
The Non-Performing Assets (or bad loans) in the Public Sector Banks have been
a matter of concern for both the Government and RBI. Even though NPAs are
omnipresentin the whole banking sector (both private and public), the public
sector is acutely affected. The Public Sector Banks reportapproximately 5.2%
of their total loans and advances as Non –Performing Assets; on the other
hand, the Private Sector Banks reportonly 1.6% of their total loans and

15. advances as Non-Performing Assets. Clearly, PSBs arefacing higher issues
relating to NPAs than their private sector counter-parts.
IMPOSITION OF NON-BANKING ACTIVITIES BY GOVERNMENT:
The Public Sector Banks have to face the pressureof managing and promoting
various governmentschemes and initiatives like Jan Dhan Yojana, Vridha
Pension etc. However, thePrivate Sector Banks haveto face no such burden.
POLICIES IN EMPLOYMENT
The Public Sector Banks are bound to follow the governmentnorms for hiring
employees, such as they need to comply with the reservation criteria in the
country to employ a certain percentage of candidates from scheduled castes,
migrants etc. which leads to a compromiseon the quality of human resource.
However, the PrivateSector Banks hire the mostqualified and highly skilled
candidates.
PRODUCTDEVELOPMENT
Due to governmentcontrol, the public banks require permissions to launch a
new service/scheme, leading to delay in introducing the product/services. PSBs
follow a rigid structurefor their operations, on the other hand, PrivateBanks
are able to adjustin the dynamic environmentmore effectively.
Conclusion:
The financial analysis of the various sectors in the banking industry has
revealed that the PSBs need to achieve cognizancewith latest technology and
procedures in order to improvetheir banking practices and stay at par with the
growing privatesector and the emerging foreign banking sector in India. Also,
the PSBs need to follow more reformed policies and procedures in order to
control the NPA figures.

16. DECLARATION
We hereby declare that this project report is our original work and the project has not
formed the basis for the award of any degree, associate ship, fellowship or any other similar
titles. We would like to thank our mentor Dr. J. Shettigar for his invaluable guidance and
patience in enlightening us with knowledge.
Place: Birla Institute of Management and Technology, Greater Noida
Date: 12.11.2016
Sources:
- RBI database for Indian economy (https://dbie.rbi.org.in/)
- EMIS database (https://www.emis.com/)
- Investopedia (www.investopedia.com/)
- Crisil Reports (https://www.cmrisilresearch.co)