New Competitive Strategies For The Survival Of Public Sector Banks

In The Post-Liberalized & Globalized Era

Dr. R.K. Uppal* Rimpi Kaur**
* Head, Dept. of Economics, D.A.V. College, Malout (Punjab)
**Research Scholar, Punjabi University, Patiala
E-mail rkuppal_mlt@yahoo.com
Mb. 98729-61700, 01637-261188 (R)
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In the Indian banking industry public sector banks occupies a vital place but their performance
is very critical even in the post banking sector reforms period. There are so many issues,
challenges, threats; they are facing for their survival in the era of globalization. The present
paper compares and analyzes the profitability of four major bank groups i.e. SBI & its
associates (G-I), Nationalized Banks (G-II), New Private Sector Banks (G-III) and Foreign
Banks (G-IV) in the second post banking sector reforms era and concludes that there is a
significant difference in the profitability of various major bank groups. The average profitability
is the highest in the foreign banks (1.06 pc) and new private sector banks (0.96 pc) but the
public sector banks are far behind in many parameters. From the correlation matrix, it is
examined that the lower profitability of public sector banks is due to the significant and negative
effect of burden whereas opposite in case of new private sector banks having their profitability
higher due to the lowest burden and positive impact of interest income and interest expended.
The paper suggests some strategies like (competitive strategies, customer focus, latest
technology, effective HRM, capital planning, profit accountability, merger and acquisition and
autonomy) which are necessary for the survival of public sector banks in the liberalized and
globalized environment.
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Introduction
The economic crises of 1990’s gave birth to the new economic macro level thinking to improve
the economic health of the Indian economy. Economic reforms were introduced to solve these
severe crises. Financial sector reforms, particularly banking sector reforms gave new sound and

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healthy direction to the Indian economy. Under the regime of LPG, new competitive strategies
emerged and proved very beneficial for overall economic development of the country.
Financial sector is the milestone in the path of economic development of the country. Public
sector banks are the backbone of Indian financial system, accounting a lion’s share in the
resources of the system. They crossed many milestones since 1969, serving as an average
population of 14000; these banks today touch almost every section of the society. But,
fortunately or unfortunately, liberalization & globalization policies made very critical position of
these banks in the new millennium. Some public sector banks are facing very serious problems
as their survival has become very difficult in the competitive world. One side, they are facing
many challenges and threats from their counterpart’s i.e. foreign banks and new private sector
banks but on the other side, they are motivated from their excellent strategies. Some banks are
merged with each other to face the emerging new inter and intra-group competition. Recently,
RBI is also working on these lines that there should be only four or five public sector banks to
face the global competition.
The present paper critically analyzes the survival issues of public sector banks and suggests some
new competitive strategies to face the new competition in the global age.
The whole paper is divided into five sections. After brief introduction, section II workout the
methodology, hypotheses and objectives of the present paper. Section III discusses the main
findings whereas section IV suggests some strategies for the survival of public sector banks. The
last section concludes the paper.
II
Objectives
1. To study and analyzes the financial performance of selected major bank groups.
2. To study and analyze the effect of various selected independent variables on profitability
of selected major bank groups.
3. To explore the challenges or major issues for the survival of public sector banks and
suggest some strategies to improve their financial position.
Hypotheses
1. There is an insignificant difference between the profitability of SBI & Its Associates and
New Private Sector Banks and the profitability of SBI & Its Associates and Foreign
Banks

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 2. There is an insignificant difference between the profitability of Nationalized Banks and
New Private Sector Banks and the profitability of Nationalized Banks and Foreign Banks
3. There is an insignificant difference between the profitability of New Private Sector Banks
& Foreign Banks
Research Methodology
The present paper is concerned with the Indian Banking Industry. Out of five bank groups, four
bank groups have been studied and their comparative profitability is analyzed in the post-second
banking sector reforms period.
G-I comprises SBI & its Associate Banks
G-II comprises Nationalized Banks (NBs)
G-III comprises New Private Sector Banks (NPSBs)
G-IV comprises Foreign Banks (FBs)
The following variables have been studied to compare the profitability of these bank groups:
1. Net Profits as %age of Total Assets Y1
2. Interest Income as %age of Total Assets X2
3. Interest Expended as %age of Total Assets X3
4. Spread %age of Total Assets X4
5. Non-Interest Expenditure as %age of Total Assets X5
6. Non-Interest Income as %age of Total Assets X6
7. Burden as %age of Total Assets X7
Some statistical techniques like average, standard deviation, correlation, R-square (coefficient of
determination) & t-test are studied to make the study more authentic. All the statistical results are
calculated with the help of SPSS 10.00 version.
III
Findings
Net Profits as %age of Total Assets (Y1)
This ratio indicates that to what extent net profits of the banks contribute to their total assets. It
highlights the financial performance of the banks. The below given table-I analyzes the trends in
the profitability of the selected bank groups during 1998-2004.
As per this data, the profitability of all the bank groups depicts increasing trend in all the years
except new private sector banks, where it shows decreasing trend till 2001-02 and then started to
increase. On an average, profitability of foreign banks is the highest i.e. 1.06 pc whereas new

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private sector banks are at the second position with 0.96 pc profitability still much better than the
public sector banks where G-I indicates 0.79 pc and G-II shows 0.69 pc. Fluctuations in terms of
coefficient of variations is the highest in G-V i.e. 47.17 pc whereas G-III shows 33.33 pc
fluctuations.
The profitability of new private sector banks is higher than that of public sector banks, because
burden is the least during the study period in G-III, although the spread is also minimum in this
bank group because interest expended by this group is proportionately higher as compared to
interest earned whereas the situation is opposite in case of public sector banks. Interest expended
is so because deposits of this bank group are increasing at tremendous rate of growth shows its
strong financial performance, that can be invested more in advances and other profitable
investments and hence make them capable to earn more profits in terms of interest, dividend etc.
and make them financially strong. Although, spread is lower in this bank group but still it
deserves higher profitability as compared to public sector banks.
Table-I: Net Profits as Percentage of Total Assets (Percent)
Years G-I G-II G-III G-IV
1997-98 0.99 0.59 1.49 0.91
1998-99 0.48 0.35 0.98 0.92
1999-00 0.78 0.42 0.91 1.15
2000-01 0.56 0.63 0.82 1.10
2001-02 0.77 0.68 0.49 0.14
2002-03 0.91 0.98 1.20 1.56
2003-04 1.03 1.18 0.83 1.64
Average 0.79 0.69 0.96 1.06
S.D. 0.21 0.30 0.32 0.50
C.V. (%) 26.58 43.48 33.33 47.17
Note: Computed from the tables given in Annexure-I
Empirical Study of Selected Bank Groups’ Profitability
SBI & Its Associate Banks (G-I)
Average profitability of this bank group is only 0.79 pc, because this table shows that its profits
are significantly but negatively correlated with burden (X7) by –0.89 value. It proves that burden
is pushing the profitability of this bank group into negative direction. The important point to note
is the interest income as %age of total assets (X2) and interest expended as %age of total assets
(X3) both are affecting the profitability negatively but have negligible affect only. Other variables
are positively but insignificantly correlated with profitability.

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In spite of this, other independent variables are also correlated with each other, where X2
(interest income as percentage of total assets) is significantly and positively correlated with X3
(interest expended as percentage of total assets) by 0.97 which proves that when interest
expended is increased due to increasing deposits, its interest income ultimately increased because
of availability of more funds to invest in profitable investments and advances. Similarly, it is
significantly but negatively correlated with X5 (non-interest expenditure as percentage of total
assets) by –0.78 and with X6 (non-interest income as percentage of total assets) by –0.92. Interest
expended as percentage of total assets (X3) is significantly but negatively correlated with X5
(non-interest expenditure as percentage of total assets) by –0.82 and with X 6 (non-interest
income as percentage of total assets) by –0.95.
Table-II: Correlation Co-efficient Matrix 1997-2004 (SBI and its Associate Banks)
Variables Y1 X2 X3 X4 X5 X6 X7
Y1 1.00
X2 -0.42 1.00
X3 -0.53 0.97** 1.00
X4 0.58 -0.09 -0.32 1.00
X5 0.09 -0.78* -0.82* 0.33 1.00
X6 0.71 -0.92** -0.95** 0.34 0.69 1.00
X7 -0.89** 0.46 0.46 -0.13 0.08 -0.67 1.00
Note: **Correlation is significant at the 0.01 level (2-tailed)
* Correlation is significant at the 0.05 level (2-tailed)
Overall, low profitability of this bank group is due to negative effect of burden which depicts
poor management of expenditure especially non-interest expenditure.
Nationalized Banks (G-II)
The profitability of nationalized banks is also lower than new private sector banks & foreign
banks because here also profitability is negatively effected by X 2 (interest income as percentage
of total assets), X3 (interest expended as percentage of total assets) and X 7 (burden as percentage
of total assets) at significant values of -0.76, -0.89 & -0.81 respectively. Whereas it is positively
and significantly affected by X4 (spread as percentage of total assets) by 0.90 and X6 (non-
interest income as percentage of total assets) by 0.95 but still show low profitability due to the
stronger effect of burden.
There is also a correlation of independent variables with each other like X2 shows significant and
positive correlation with X3 at 0.97 and with X7 at 0.83 but having a negative correlation with X6.
X3 is significantly but negatively correlated with X6 by –0.86 whereas positively with X7 by 0.81.

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Similarly, X4 is significantly and positively correlated with X5 and X6 whereas X6 is significantly
but negatively correlated with X7.
Table-III: Correlation Co-efficient Matrix 1997-2004 (Nationalized Banks)
Variables Y1 X2 X3 X4 X5 X6 X7
Y1 1.00
X2 -0.76* 1.00
X3 -0.89* 0.97** 1.00
X4 0.90** -0.53 -0.73 1.00
X5 0.74 -0.31 -0.53 0.91** 1.00
X6 0.95** -0.78* -0.86* 0.79* 0.70 1.00
X7 -0.81* 0.83* 0.81* -0.47 -0.27 -0.85* 1.00
Note: **Correlation is significant at the 0.01 level (2-tailed)
* Correlation is significant at the 0.05 level (2-tailed)
New Private Sector Banks (G-III)
The profitability of this bank group, although lower than foreign banks, but still strong as
compared to public sector banks. The strong point of their higher profitability is the least burden
i.e. proper management of their expenditure. The profitability of this group is positively and
significantly correlated with X2 and X3 by 0.79. This is so because deposits are at the peak in this
bank group and helping them to earn a handsome interest income by investing these funds into
profitable investments.
Table-IV: Correlation Co-efficient Matrix 1997-2004 (New Private Sector Banks)
Variables Y1 X2 X3 X4 X5 X6 X7
Y1 1.00
X2 0.79* 1.00
X3 0.79* 0.99** 1.00
X4 0.69 0.87* 0.78* 1.00
X5 0.61 0.49 0.45 0.67 1.00
X6 0.75 0.42 0.42 0.47 0.90** 1.00
X7 -0.32 0.17 0.07 0.46 0.20 -0.25 1.00
Note: **Correlation is significant at the 0.01 level (2-tailed)
* Correlation is significant at the 0.05 level (2-tailed)
On the other hand, in case of correlation between the independent variables, X2 is significantly
and positively correlated with X3 & X4. Similarly, X3 is significantly and positively correlated
with X4 that means interest income and interest expended both are positively increasing the
spread of this bank group, which further contribute to its higher profitability. X5 is significantly
and positively correlated with X6 whereas X7 has negligible affect on its profitability.

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Overall, profitability of this bank group is higher due to more spread supported by more interest
income and expenditure and lowest burden.
Foreign Banks (G-IV)
Foreign banks’ profitability is the highest in Indian Banking Industry whereas all the variables
except X4 has negative correlation with its profitability but negligible.
On the other hand, X2 is significantly and positively correlated with X3 and X7, similarly variable
X3 and X5 are significantly and positively correlated with X7. From this data, it can be concluded
that burden has positive correlation with X2, X3 & X5 affecting these variables significantly. Still
the profitability of this bank group is sound which proves that financial performance is excellent
in this group due to their efficient management.
Table-V: Correlation Co-efficient Matrix 1997-2004 (Foreign Banks)
Variables Y1 X2 X3 X4 X5 X6 X7
Y1 1.00
X2 -0.47 1.00
X3 -0.73 0.93** 1.00
X4 0.63 0.31 -0.06 1.00
X5 -0.56 0.52 0.49 0.12 1.00
X6 -0.07 -0.56 -0.48 -0.28 0.39 1.00
X7 -0.55 0.90** 0.83* 0.31 0.82* -0.22 1.00
Note: **Correlation is significant at the 0.01 level (2-tailed)
* Correlation is significant at the 0.05 level (2-tailed)

Regression Analysis (R-Square)

R-square determines the extent to which an independent variable affects the dependent variable.
The data shows that in case of G-I, variable X7 has the highest extent to affect the profitability of
this bank group i.e. 78.50 pc that means with the increase/decrease of one unit in burden it will
change its profitability by 78 pc whereas X6 i.e. non-interest income is effecting the profitability
by 50 pc.
In case of G-II, X6 is dominant, affecting the profitability by 89 pc positively and secondly
variable X4 is also positively affecting the profitability by 81 pc. In this bank group spread and
non-interest income are dominant to affect the profitability.
Profitability of G-III is positively affected by X2 & X3 at 62 pc rate whereas burden has only 10
pc effect on the profitability. Hence, it shows that X2, X3 and X7 are playing an important role in
the increasing profitability of this bank group.
In case of G-IV, variable X3 is dominant and affecting the profitability by 53 pc whereas X 6 has
no effect on the profitability of this bank group.
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Overall, it can be concluded that low profitability of public sector banks is due to higher burden
and higher profitability of new private sector banks is due to handsome interest income and
lower burden. Hence, financial performance of new private sector banks and FBs is sound as
compared to that of public sector banks.
Table VI: Impact of Various Selected Variables on Group Profitability of Major
Bank Groups- R2
G-I G-II G-III G-IV
Variables 2 2 2
r R r R r R r R2
X2 -0.419 0.175 -0.764 0.584 0.790 0.624 -0.471 0.222
X3 -0.529 0.280 -0.887 0.787 0.789 0.622 -0.731 0.534
X4 0.577 0.333 0.900 0.810 0.693 0.480 0.627 0.393
X5 0.086 0.007 0.741 0.549 0.612 0.374 -0.559 0.312
X6 0.709 0.503 0.946 0.895 0.753 0.567 -0.070 0.005
X7 -0.886 0.785 -0.809 0.654 -0.318 0.101 -0.549 0.301

Testing of Hypotheses
The data witnessed that average profitability of public sector banks is significantly lower than
new private sector banks and foreign banks. New private sector banks are also following the
foreign banks by covering this gap. Hence, our hypotheses are rejected because there is a
significant difference between the profitability of public sector banks from new private sector
banks and foreign banks. We may conclude that the difference in profitability of public sector
banks from that of new private sector banks and foreign banks is significant and cannot be
ignored. There is a need to make some effective strategies to improve the profitability of public
sector banks too.

Table-VII: Analysis of Widening Gap Between the Profitability of Major Bank Groups
Bank Mean Sig.
S.D. S.E. t-value d.f.
Groups Difference (2-tailed)
G-I & III -0.1714 0.3113 0.1176 -1.457 6 0.195
G-I & IV -0.2714 0.4662 0.1762 -1.540 6 0.174
G-II & III -0.2700 0.4434 0.1676 -1.611 6 0.158
G-II & IV -0.3700 0.4208 0.1590 -2.326 6 0.059
G-III & IV -1.0000 0.4680 0.1769 -0.565 6 0.592

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Emerging Issues From These Findings
From the above analysis it can be concluded that the performance of public sector banks is far
behind the new private sector banks and foreign banks. Following are some issues come into
light:
1. Increasing burden of all public sector banks, resulting in decreasing profitability.
2. Lack of consideration to non-interest income areas.
3. Increasing non-interest expenditure especially establishment cost because of overstaffing
and less productive staff.
4. Lesser use of latest technology.
5. Poor HRM policies.
6. More and more banks are declared as weak banks.
7. Lack of adequate capital.
IV
New Competitive Strategies to Tackle These Issues, threats and challenges
The economic liberalization process has increasingly exposed the banking sector along with the
other sectors of the economy to international competition. In order to meet the challenges of
global competition, it has become necessary to change with the changing times, at least to the
extent as demanded by the market. Accordingly, several measures of improvement have been
recommended and implemented time to time such as nationalization of banks, introducing
reforms, IT Act 1999 etc. New private sector banks and foreign banks have witnessed a
remarkable growth in the banking industry but our century old public sector banks with large
branch network, wide customer base and rich experience are suddenly perceived as inefficient,
overstaffed, bureaucratic organizations which the customers are ready to desert at the first
opportunity. We have analyzed above that public sector banks are facing with the problem of
lower profitability due to excessive burden, which is because of excessive non-interest
expenditure comprising of excessive establishment cost again effect of overstaffing. This all
affect the overall financial performance of these banks badly, which depicts poor management of
expenditure by these banks. Hence, the following are some major challenges faced by these
banks need to be solved:
1. Question of Survival in Competition – (Effective Competitive Strategies): The winds
of liberalization have opened up new vistas in the banking industry resulting in the
generation of intensely competitive environment. The foreign banks and new private

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 sector banks have witnessed a remarkable growth but on the other side, public sector
banks are at the edge to survive because new private sector banks and foreign banks with
huge capital base, latest technology, innovative and globally tested products/services are
fetching the customer’s attention and earning handsome money.
Strategy:
To make our public sector banks competitively strong, competitive strategies should be
formulated to meet the new international competition. For this, they should follow the
strategies of new private sector banks and foreign banks as benchmark.
• Public sector banks should make their own effective competitive strategies taking
into consideration the strategies of new private sector banks and foreign banks.
• Introduce latest technology.
• Introduce innovative and globally accepted products/services.
• Appoint experienced, skilled and tech-friendly professionals to formulate the
competitive strategies.
2. Ignorance of Customers – Customer Focus: Customers are the only profit center in
today’s business, but the public sector banks don’t want to be careful for this. They
ignore the customer requirements and staff is just concerned with their salaries nothing
else. Customer is a king in today’s market. All the public sector banks (except some
banks) never try to focus on their needs and hence loose their market share. The
customers are shifting from public sector banks to new private sector banks particularly
our young generation.

Strategy:
The ‘Guru Mantra’ to survive in the competitive market is effective, attractive and
satisfactory customer services. Public sector banks should also focus on customer needs
and serve them accordingly.
• Firstly, they should make their policies and strategies customer focused.
• Identify the potential customers, their needs and preferences and then accordingly
improve the services.
• Improve delivery system by improving the attitude and behaviour of the staff also.

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 • Reduce transaction cost at least affordable by the poor customers too.
• For the whole purpose, staff should be trained.
Public sector banks with their huge workforce have to strive hard to change the entire
organizational culture in order to measure up to customer expectations.
3. Obsolete Technology – (Latest Technology): Why our public sector banks are lagging
behind our new private sector banks and foreign banks? Because they are fully IT-
oriented, provide innovative services/products through latest technology. Our public
sector banks, having vast branch network in rural, poor and uneducated areas, to whom
the level of automation and efficiency of services are immaterial. Still, these areas lack
the basic infrastructure, so how it is possible to introduce e-services/technology. Hence
there is a need to make them capable at least to compete with our new private sector
banks.
Strategy:
Technology is no longer a matter of choice but compulsion to survive in the globalized
market.
• Public sector banks should also adopt the latest technology to provide e-services
as need of the hour. It will also help to reduce their burden of extra establishment
expenditure.
• Technology should be cost-effective, customer-driven and especially
implementable in the real working.
• Appoint young employees with fresh and creative minds expert in latest
technology and trained the other ones also.
• Public sector banks should also be connected in single server network so that one
branch/bank can communicate with others easily and quickly and make the services
flexible.
As we all know, any change in any form is painful, so these programmes cannot be
succeed without going through the pains of restructuring and sacrifices either of material
or of men.
4. Poor Human Resource Management – (Effective HRM): The profitability of any
organization depends on the productivity of its people, as they are the real strength of that
organization. New private sector banks and foreign banks have understood this mantra

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 and hence appointing people with fresh and creative minds with full of knowledge of
latest technology. Approximately 90 pc of their staff is young with fresh brains. But
public sector banks are overloaded with much experienced senior staff but with old hands
who never ready to change accordingly. Now days, it is the need of the hour to develop
and manage the human resources to make them adaptable to the changing environment. It
is a big challenge for these banks that how to manage their human capital to make it
productive, because unproductive staff is only burden on the business and hence weaken
these banks as compare to private sector and foreign banks.
Strategy:
Technology is an aid for human resources to perform their activities efficiently not a
substitute thereof. So, how to achieve the goals with the human capital through
technology is a vital challenge for the public sector banks:
• Constitute separate Human Resource Development department in each bank.
• Provide on the job training to the inefficient (technology) staff to make them
capable to understand and work with the latest technology.
• Appoint fresh professional having experience in handling bank services
through the latest technology.
• Make the recruitment, selection, performance appraisal and control policies
transparent.
• Performance of the staff should be evaluated quarterly or monthly to update
their knowledge in case of any deficiency.
• Introduce VRS in a planned way.
5. Inadequate Capital – Capital Planning: There is a sign of decline not only in profits of
public sector banks but they are undercapitalized too. If the NPAs are adjusted against
tier-I capital, none of the public sector banks, baring a few i.e. PNB, Corporation Bank
etc., will reach the prescribed minimum CAR (Capital Adequacy Ratio) of 10 pc. Many
banks (new private sector banks & foreign banks) have started to access domestic as well
as foreign markets to raise the additional capital. But our public sector banks are failed to
raise additional capital due to inadequate capital planning and some critical restrictions
by the government.
Strategy: To raise their capital following strategies are suggested:

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 • Public sector banks should come up with the active capital planning based on
budgeting to ensure growth within the means generated by internal accruals.
• Cost of capital has to be factored into the product pricing policy adopted by
the banks.
• The top management should be pragmatic enough to allocate capital to
positive and higher risk adjusted returns and withdraw from loss-making
products/services.
• Public sector banks should provide free access to market to raise additional
capital without government interference.
If the banks are unable to fulfill the conditions laid down by the RBI, they will have no
other option but to close down. As more government funds to these banks leading more
government deficit, so government have now come to decide finally on privatizing public
sector banks to reduce deficit financing.
7. Greater Emphasis on Profitability not on Accountability – (Profit Accountability):
Public sector banks give more stress on profitability not on the accountability. If the
required profit target is achieved, nobody is accountable to reward and similarly in case it
is not achieved then also nobody is accountable for punishment. Only branch units are
given profit targets, not for functional heads and hence no accountability. In new private
sector and foreign banks targets are given to persons and hence they are responsible for
their performance individually.
Strategy:
To cope up with this problem public sector banks should make proper policies for profit
accountability.
• Public sector banks should fix accountability with targets on each concerned
unit and person of the banks.
• Award the people who have achieved his target and take some necessary steps
to improve the performance of others who have not been able to perform up to the
mark.
8. Weak Banks/Branches with heavy Losses – (Mergers & Acquisitions): There are
several banks and some branches of the banks going continuously in losses, which are
weak, not able to survive in the market. Its overall affect on public sector banks’
performance is becoming poor and poor.
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 Strategy: The banks should close the branches having greater losses but the branches
whose financial position is still good to some extent, can be converted into profitable
branches by merging them into efficient banks who are capable to manage them. Merger
and acquisition is a possible solution to meet the international competition. Public sector
banks can also opt for the same. The main motive of the merger and acquisition should be
to multiply their strength with distinct advantages. The need is to make the M & A policy
more clear and stronger.
• Merger of some branches of the banks with other banks should be allowed.
• Merger of some transactions can also be opted if it is profitable, rather to go
for full merger.
• Merger and acquisition should be in favour of all the concerned
banks/branches.
In the span of twelve months period, Indian banking has witnessed to major acquisitions
like HDFC and Times Bank, Standard Charted Bank and Grindlays Bank, ICICI and
Madura Bank etc, which resulted in improved performance of these banks. Hence, public
sector banks should also come ahead to save themselves.
9. Excessive Interference by the Government – (Autonomy): Even after liberalization,
still there are restrictions imposed by the RBI on the scheduled commercial banks. This
non-autonomy to the public sector banks is a hindrance in their development. On the
other hand, foreign banks and new private sector banks have the full autonomy in day-to-
day operations and that is why their performance is significantly better than public sector
banks.

Strategy:
Public sector banks need operational freedom and autonomy. There should not be a
bureaucratic control of the owners. In a liberalized environment public sector banks need
to conduct its affairs based on the market signals. So, we can say, to compete in
the global market public sector banks should be given full autonomy. RBI should provide
full autonomy in the following areas:
• All the public sector banks should be given full autonomy to enter the
insurance sector.
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 • All banks should be allowed for free merger and acquisitions.
• All banks should be allowed to curtail the rural branches.
• Managers/experts from the private sector banks should be allowed to serve the
public sector banks without any condition.
• Autonomy to fix quota for priority sector advances.
• Politicians should not be allowed to interfere in the functioning of these
banks.
V
Conclusion
We may conclude from the above discussion that various issues are relevant not only for the
survival but to ensure sustainable growth of public sector banks in the new millennium too. If the
proper planning is made to develop the public sector banks only then they will survive in the
future. Public sector banks should make competitive strategies to compete with the other private
sector banks in the liberalized and globalized era. To face the global competition, public sector
banks should adopt the IT and for this they should change their work culture according to the
changing environment.

Future Area of Research

• Globalization of banking services & their effect on bank efficiency
• Emerging new competition & dynamic role of banks
• CRM – Relation with bank efficiency
• E-banking – Attitude of bank customers
• Structural changes in Indian Economy & changing role of banks

Annexure - I
Table I: Interest Income as Percentage of Total Assets (Percent)
Years G-I G-II G-III G-IV
1997-98 8.66 8.61 8.70 9.69
1998-99 8.41 8.70 8.73 9.48
1999-00 8.52 8.64 7.17 9.16
2000-01 8.47 9.09 8.17 9.86
2001-02 8.62 8.77 4.51 8.47
2002-03 8.26 8.39 8.13 7.67

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2003-04 7.46 7.43 6.66 6.59

Table II: Interest Expended as Percentage of Total Assets (Percent)

Years G-I G-II G-III G-IV
1997-98 5.68 5.97 6.55 5.99
1998-99 5.69 6.06 6.83 6.24
1999-00 5.81 6.10 5.33 5.54
2000-01 5.68 6.19 6.03 5.98
2001-02 5.91 6.03 3.33 5.93
2002-03 5.50 5.39 6.43 4.33
2003-04 4.62 4.38 4.68 3.13

Table III: Spread as Percentage of Total Assets (Percent)

Years G-I G-II G-III G-IV
1997-98 2.98 2.64 2.15 3.70
1998-99 2.72 2.64 1.90 3.24
1999-00 2.71 2.54 1.84 3.62
2000-01 2.79 2.90 2.14 3.88
2001-02 2.71 2.74 1.18 2.54
2002-03 2.76 3.00 1.90 3.34
2003-04 2.84 3.05 1.98 3.46

Table IV: Non-Interest Expenditure as Percentage of Total Assets (Percent)

Years G-I G-II G-III G-IV
1997-98 3.49 3.15 2.95 5.54
1998-99 3.65 3.31 2.39 4.60
1999-00 3.34 3.27 2.42 4.81
2000-01 3.53 3.71 2.67 5.40
2001-02 3.28 3.55 1.91 5.30
2002-03 3.47 3.69 3.37 4.42
2003-04 3.80 3.73 3.26 4.77

Table V: Non-Interest Income as Percentage of Total Assets (Percent)

Years G-I G-II G-III G-IV
1997-98 1.50 1.13 2.29 2.75
1998-99 1.41 1.02 1.47 2.28
1999-00 1.41 1.15 1.49 2.34
2000-01 1.30 1.14 1.35 2.62
2001-02 1.34 1.49 1.20 2.90
2002-03 1.62 1.67 2.57 2.64
2003-04 1.99 1.86 2.11 2.95

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 Table VI: Burden as Percentage of Total Assets (Percent)
Years G-I G-II G-III G-IV
1997-98 1.99 2.05 0.66 2.79
1998-99 2.24 2.29 0.92 2.32
1999-00 1.93 2.12 0.93 2.47
2000-01 2.23 2.27 1.32 2.78
2001-02 1.94 2.06 0.69 2.40
2002-03 1.85 2.02 0.80 1.78
2003-04 1.81 1.87 1.15 1.82

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Das, A. (2002), ‘Risk & Productivity Change of PSBs’, EPW (February 2), Vol.
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Murthy, P.V.R. (1996), Cost and Profitability of PSBs, (New Delhi: Mohit Publications)
Shrivastava, M.P. (2004), Indian Banking in the New Millennium, (New Delhi: Anmol
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