Relative Financial Performance of Public Sector Banks

Abstract

During the 20th century, in most of the nations, domestic banking was generally subjected to heavy regulations and financial repression. The growth and financial stability of the country depend on the financial soundness ofits banking sector. The Indian banking sector has been working in a more open and globalized environment for two decades since liberalization. The liberalization process of the Indian Economy has made the entry of new private sector banks possible and allowed the foreign sector banks to increase their branches in the banking sector. Besides, following India's commitment to the WTO, foreign banks have been permitted to open more branches with effect from 1998-99. With the increased competition and the emphasis on profitability, the public sector banks are now moving towards an economic-oriented model, departing from the social approach followed for decades. Thus, the restructuring of public sector banks and the emergence of new banks in the private sector as well as the increased competition from foreign banks, have improved the professional ism in the banking sector. The increased presence of the private and foreign banks during the past decade has made the market structure of the banking sector in terms of competitive pricing of services, narrow spreads, and improving the quality of the services. The public sector banks, which had dominated the banking sector for decades, are now feeling the heat of the competition from private and foreign sector banks.