CHALLENGES FOR PUBLIC

SECTOR BANK IN INDIA

 INTRODUCTION TO INDIAN
BANKING INDUSTRY
 Banking in India originated in the
first decade of 18th century with
The General Bank of India coming
into existence in 1786.

 The oldest bank in existence in India
is the State Bank of India being
established as "The Bank of Bengal"
in Calcutta in June 1806.


 Bank of Bombay (1840) and Bank of

Madras (1843) as independent units
and called it Presidency Banks.
 INTRODUCTION TO INDIAN
BANKING INDUSTRY ( cont ….)

A couple of decades later, foreign

banks like Credit Lyonnais started
their Calcutta operations in the
1850s.


 The first fully Indian owned bank was

the Allahabad Bank, which was
established in 1865.

 The Reserve Bank of India formally
took on the responsibility of
regulating the Indian banking
sector from 1935. After India's
GROWTH OF BANKING
GROWTH OF BANKING:

GROWTH
OF
BANKING
 GROWTH OF BANKING
( PHASE I)
 During the first phase the growth was
very slow and banks also
experienced periodic failures
between 1913 and 1948. There were
approximately 1100 banks mostly
small.

 ReserveBank of India was vested with
extensive powers for the
supervision of banking in India as
the Central Banking Authority.

 During those days public has lesser
GROWTH OF BANKING
( PHASE II )
 Government took major steps in this Indian
Banking Sector Reform after independence.
In 1955, it nationalized Imperial Bank of
India with extensive banking facilities
on a large scale especially in rural and
semi-urban areas.

 It formed State Bank of India to act as
the principal agent of RBI and to
handle banking transactions of the Union
and State Governments all over the
country.

 After the nationalization of banks, the
branches of the public sector bank India
 NATIONALISATION OF
BANKING SECTOR
 The nationalisation of banks in India took
place in 1969 by Mrs. Indira Gandhi the
then prime minister. It nationalised 14
banks then. These banks were mostly owned
by businessmen and even managed by them.


 Central Bank of India Bank of

Maharashtra
 Dena Bank Punjab National Bank
 Syndicate Bank Canara Bank
 Indian Bank Indian Overseas
Bank
 Bank of Baroda Union Bank

 GROWTH OF BANKING
( PHASE III )
 This phase has introduced many more
products and facilities in the
banking sector in its reforms
measure.

 In 1991, under the chairmanship of M
Narasimham, a committee was set up
by his name which worked for the
liberalization of banking practices.

 The country is flooded with foreign
banks and their ATM stations.

 BANKING SYSTEM IN
INDIA

Public
sector bank
RBI
Private
BAN sector bank
K
Co
operative
banks
Foreign sector bank
 PUBLIC SECTOR BANKS
 The public sector is the one whose
working is in the hands of the
government.


 The government holds a majority stake in

public sector industries.

 Their activities are mostly influenced by
the government.

 It may be defined as “an enterprise where
there is no private ownership but its
activities are not mainly confined to
 PRIVATE sector bank
A private bank is owned by either an
individual or a general partner(s) with
limited partner(s).


 Old generation private banks: Old generation

private banks are the banks which prevailed
mainly before independence. The only purpose of
those banks was to serve specific religion, caste,
race, or region.

 New generation private banks: New generation
private banks like HDFC, ICICI, IDBI, and AXIS
have grown with a rapid branch expansion. The
network of private sector bank grew at almost
three times of all scheduled commercial banks and
more than four times that of public sector banks.
The star performers among these banks were The
 CO - OPERATIVE BANKS
 A co-operative bank is a financial entity
which belongs to its members, who are at the
same time the owners and the customers of
their bank. Co-operative banks are often
created by persons belonging to the same
local or professional community or sharing a
common interest.


 In rural areas, as far as the agricultural and

related activities are concerned, the supply
of credit was inadequate, and money lenders
would exploit the poor people in rural areas
providing them loans at higher rates.


 Co operative Banks in India are registered

 Foreign banks
 Foreign banks working in India like Abn-amro,
HSBC, CITI, Standard Chartered Bank brought
the drastic changes in whole banking
industry. Foreign Banks in India always
brought an explanation about the prompt
services to customers.


 After the set up foreign banks in India, the

banking sector in India also become
competitive and accretive.

 Computerized functioning, core banking, ATM
centers are the ideas generated by foreign
banks.

 CHALLENGES FOR PUBLIC
SECTOR BANKS IN INDIA
 CHALLENGES FOR PUBLIC SECTOR BANKS IN
INDIA ARE FOLLOWING :-


 Implementation of latest technology

 How to reduce NPA
 Corporate governance
 Man power planning
 Talent management
 Risk management
 Challenges in banking security
 Growth in business
 Enhancing Customer Service

 Implementation of latest
technology
 Online banking uses modern computer
technologies to offer the users convenient
banking facilities. If you have access to such
a facility, there is absolutely no need for
you to personally visit your bank’s branch for
any sort of transaction.

 Private sector and foreign banks were using
technology and computerized system since its
beginning while PSBs were not.


 So they found difficulty in managing all these

things. Many of Indian PSBs ignored
technological change and had lost market share
to foreign banks and new private banks.
 Non performing asset
 Definition :- A loan or lease that is not
meeting its stated principal and interest
payments. Banks usually classify as
nonperforming assets any commercial loans
which are more than 90 days overdue and any
consumer loans which are more than 180 days
overdue. More generally, an asset which is
not producing income.

 The extent of NPA is comparatively higher in
public sectors banks. To improve the
efficiency and profitability, the NPA has to
be scheduled. Various steps have been taken
by government to reduce the NPA. It is highly
impossible to have zero percentage NPA. But
 Contd……
 Gross and net NPA of different
sector of bank. 1.76 1.49

Category 2005 2006 2007 2008

Public sector 12.37 11.09 9.36 7.79
bank
Private 8.37 9.64 8.07 5.84
sector
Foreign bank 6.84 5.38 5.25 4.62
 Corporate Governance
 It is a system of structuring, operating and
controlling a company with a view to achieve
long term strategic goals to satisfy
shareholders, creditors, employees, customers
and suppliers, and complying with the legal
and regulatory requirements, apart from
meeting environmental and local community
needs.

 Corporate governance in PSBs is complicated by
the fact that effective management of these
banks vests with the government and the top
managements and the boards of banks operate
merely as functionaries.

 Man - power Planning
 Manpower is the biggest challenge for the
public sector banks.


 public sector banks were faced with a large

attrition rate of over 30 % and are
experiencing an overall deceleration in the
number of employees. Because It takes as long
as 18 months for the recruitment process of
a typical state-owned bank to be concluded .


 Public sector banks were more likely to be

seen as an older generation organisation
where the average age group would be 50
years. Public sector banks therefore need to
implement right strategies to woo young
 Contd….
 The banks also need to develop existing staff
in newer competencies through a systematic
and rigorous training and also recruit, if
necessary super specialist and specialist in
areas like technology, treasury management,
marketing, operations and project management.

 So it is a challenge for Public sector Banks
not only to recruit more employees but also
to recruit quality professional.

 TALENT MANAGEMENT
 Banks will have to pay increasing attention to
education and training including sponsorship
of identified persons to MBA programmes, PhD
programmes and other long duration
programmes in technology and financial
management to develop a wider managerial
pool of competent people who can be
developed fast to play the role of modern
banker in ever difficult and turbulent times.

 There is also need to develop organisation-
wide awareness about banks key business
problems including stagnant business units,
strain on profitability, cost of operations,
unexplored business opportunities, manpower
 RISK MANAGEMENT
 Risk management is the growing challenge
for Indian public sector banks because
competitive environment is increasing
in public sector banks. Like:- Credit
Risk.

 Credit risk is the risk of loss due to a
debtor's non-payment of a loan or other line
of credit (either the principal or interest
(coupon) or both)

 Challenges in Banking
Security
 Security in banks has thus assumed significant
proportions, comprising both physical aspects
in addition to those relating to Information,
Information Systems and Information
Technology, all of which have an impact on
the reputational risk of a financial
organisation.

 Against this backdrop, the security
requirements of the banking sector need to
be assigned high levels of priority.

 I must add here that in a recent case of a co-
operative bank, the entire operations,
maintenance and management of the computer
 GROWTH IN BUSINESS
 Public Sector Banks should now go global in
search of new markets, customers and profits.
Some of the Public Sector Banks have their
presence in overseas to a limited extent.

 The London based magazine “The Banker” has now
listed only twenty Indian banks including
private sector banks in the list of “Top 1000
World Banks”.


 The State Bank of India, the largest bank in

India, ranks only 82nd amongst the top global
banks. It is not even a 10th in size of the
9th largest bank, Sumitomo Mitsui, which has
assets of $950 billion as against SBI’s
assets of $91 billion.
 ENHANCING CUSTOMER
SERVICE
 Customer is god in the UK and USA. Customer is
the king in Japan. But, the customer is the
‘Boss’ in India and the ‘Boss’ is always right.


 The Public Sector Banks may need to include

customer oriented approach or customer focus
in their five areas of businesses such as
cash accessibility, asset security, money
transfer, deferred payment and financial
advices.

 In order to develop close relationship with
the customers the Public Sector Banks have
to focus on the technology oriented
innovations that offer convenience to the
customers.
 Executive summery
 Indian banks are facing innumerable challenges
such as worrying level of NPAs ,
deteriorating asset quality, increasing
pressures on profitability, asset-liability
management, liquidity risk management, market
risk management and ever tightening
prudential norms.

 The primary challenge for banks is to provide
consistent service to customers irrespective
of the kind of channel they use. Banks in
India have been working towards a vision
that includes transformed branches, enhanced
telephone services, and leading edge
internet, banking functions that provide a
 BIBLIOGRAPHY
www.rbi.org.in


RBI newsletter


Google search engine



en.wikipedia.org


Annual report of RBI 2007-2008


 
THANK YOU…



PRESENTED BY:-



AMIT

&

NEERAJ SHARMA

(MBA Ist Sem.)



GUIDED BY:-



Mrs. RITUPARNA