Operating Efficiency of Public Sector Commercial Banks in India During the First and Second Generation Reforms

Abstract

Public Sector Banks (PSB), being an important group of the financial organization of the Indian economy, acts as the backbone of economic growth and prosperity. It was observed that during the post-nationalization era, in spite of the progress made by the PSBs in general, the profitability of most of the PSBs declined due to tough competition among the different bank groups in the banking sector. Thus, in view of removing the serious erosion in the productivity and profitability of PSBs, the Government of India introduced reforms in the banking sector in 1991 and 1998 as per the recommendations ofNarasirnham Committee. At the outset, there was the pre-reform banking phase characterized by unprecedented growth and the pursuit of mass banking. This was followed by the era ofreforms, which imparted an altogether different dimension to the nuances of banking, through what is better known as first-generation reforms. Currently, the banking system is in the second generation reforms featuring consolidation, merger and convergence as the core of major issue.