Retail bank services: performance of public sector banks in India

• Author: Dr. N.P. Sharma & Ms. Meenakshi Sharma

Introduction

Retail Banking means mobilizing deposit from individuals and providing loan facilities to them in the form of home loans, auto loans, credit cards etc. It is much more than as opportunity to addressing dwindling margins. It is an imperative to preserve profits and market positions.

With recession departing away from global economy, opportunities are slowly emerging in markets. Growth opportunities in banking, especially retail segment is set to witness fast growth due to high consumption. The higher growth of retail lending in emerging economies is attributable to fast growth of personal wealth, favorable demographic profile, rapid development in IT, the conducive macro- economic environment, financial market, reforms and several micro- level supply side factors..

The objective of the study is to

1) Investigate the expansion of various public sector banks in India.

2) Analyse the rating of various public sector banks in India.

3) Examine the performance of these banks in relation to different dimensions of retail services provided by them.

Methodology

The parameters which have been categorically looked into include inter-alia the advances, profit per employee, the rate of expansion of branches all of which have been tested comprehensively besides having a new comparative account of the application of these variables.

The relationship between profit per employee and business per employee is tested using Karl Pearson,s coefficient of correlation.

Purpose of Public Sector Banks

A modern industrial society cannot be run by self-financing of entrepreneurs. Some institutional assistance is necessary to mobilize the savings of the society and to make them available to the entrepreneurs. The people, a large majority of who save in small odd lots, also want an Institution which can ensure safety of their funds together with liquidity. Banks assure this with a further facility - that the funds can be drawn back in case of any need.

From a broader social angle, banks act as a bridge between the users of capital and those who save but cannot use the funds themselves. The idle resources of the community are, thus, activated and brought to productive use.

Besides, the banking system has capacity to add to the total supply of money by means of credit creation. The bank is a dealer in credit - its own and other people's. It is because of the ability to manipulate credit that banks are used extensively as a tool of monetary policy.

Banks play a very useful and dynamic role in economic life of every modern state. Their economic importance may be viewed in the following points.

1- A developing economy needs a high rate of capital formation to accelerate the tempo of economic development. But the economic development depends upon the rate of savings. Banks offer facilities for keeping savings and, thus, encourage the habits of thrift in the society.

2- Not only do the banks encourage savings but they also mobilize savings done by several households and make them available for production and investment to the entrepreneurs in various sector of the economy. Without banks these savings would have remained idle and would not have been utilized for productive and investment purposes.

3- Allocation of funds or economic surplus among different sectors, users or producers so as to make maximum social return and, thus, to ensure optimum utilization of savings is another important function performed by the banks. However, it may be mentioned, that public sector banks do not always work and allocate resources in the way that maximizes production or social welfare. For example, before nationalization in 1969, the commercial banks in India neglected socially highly desirable sectors such as agriculture, small scale industries and weaker sections of the society. Therefore, it was thought necessary to nationalize them so that they should allocate resources in socially desirable directions.

4- By encouraging savings and mobilizing them from public, banks help to increase the aggregate rate of investment in the economy. Banks not only mobilize saved funds from the public, but they also themselves create deposits or credit which serve as money. The new deposits are created by the banks when they lend money to the investors or other users. These deposits are created by the banks in excess of the cash reserves; they obtain through deposits from the public. Those days, the bank deposits, especially demand deposits are as much good money as the currency issued by the government or the central bank. This creation of credit, it if is used for productive purpose greatly enlarge production and investment and, thus, promotes economic growth.

The success of banks is measured primarily on two factors.

(i) Rate of increase in deposit mobilization; and

(ii) Rate of increase in advances.

Analysis and Findings

In order to know the performance of PSBs in India, an attempt has been made here to show the advances disbursed by all nineteen PSBs during the period of 2005-06 to 2009-10 by table 3.1.

Table 3.1

ADVANCES OF PSBS during the period 2005-06 to 2009-10

(In Rs. Crore)

[ Table does not include ]

Source : Annual publication,"Statistical table relating to banks in India",R.B.I

A significant surge can be observed in the advance disbursed by all nineteen nationalized banks during the period 2005-06 to 2009-10. It is evident from the table 3.1 that a sum of Rs. 681868 crore was disbursed in the year 2005-06 which increased upto Rs. 19981505 crore in the year 2009-10 registering the growth of 97%. An analysis of advances made by nationalized banks individually in the year 2005-06 reveals that Rs. 79426 crore, the highest amount, was advanced by Canara Bank followed by Punjab National Bank( Rs. 746257 crore),Bank of India (Rs. 65174 crore) Bank of Baroda (Rs. 59912 crore), Union Bank of India (Rs. 53380 crore), Central Bank of India (Rs. 37483 crore), UCO Bank (Rs. 37378 crore), Syndicate Bank (Rs. 36466 crore), Indian Overseas Bank (Rs. 34756 crore), Oriental Bank (Rs. 33577 crore), Allahabad Bank (Rs. 29148 crore), Corporation Bank (Rs. 23962 crore), Indian Bank (Rs. 22485 crore), Andhra Bank (Rs. 22100 crore), Vijaya Bank (Rs. 16664 crore), Bank of Maharastra (Rs. 16470 crore), United bank of India (Rs. 15522 crore), Dena Bank (Rs. 14231 crore), and Punjab and Sind Bank (Rs. 9107 crore).

Further, it is established that during 2006-07 sum of Rs. 895405 crores were disbursed by all nationalized Bank, out of which the the highest amount was advanced by Canara Bank ( 98506 Rs. crore) followed by Punjab National Bank (Rs. 96597 crore), Bank of India (Rs. 85116 crore), Bank of Baroda (Rs. 83621 crore), Union Bank of India (Rs. 62386 crore), Central Bank of India (Rs. 51795 Crore), Syndicate Bank (Rs. 51670 crore), UCO Bank (Rs. 46989 crore), Indian Overseas Bank (Rs. 47060 crore), Oriental Bank of Commerce (Rs. 44138 crore), Allahabad Bank (Rs 41290 crore), Corporation Bank (Rs. 29950 crore), Indian Bank (Rs. 29058 crore), Andhra Bank (Rs. 27889 crore), Vijaya Bank (Rs. 24224 crore), Bank of Maharastra (Rs. 22919 crore), United Bank of India (Rs. 22156 crore),Dena Bank (Rs. 18303 crore), and Punjab and Sind Bank (Rs...