A STUDY ON THE COMPARATIVE ANALYSIS OF PUBLIC

SECTOR BANKS AND PRIVATE SECTOR BANKS

A Project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce of Accounting & Finance
Under the Faculty of Commerce.
By
Miss. Gaikar Payal Chandrakant
Under the Guidance of
Prof. Dr. Nilesh Eknath Koli

।। विद्या विनयेन शोभते ।।

Janardan Bhagat Shikshan Prasarak Sanstha’s

CHANGU KANA THAKUR
Arts, Commerce and Science College
Sector:11, Khanda Colony, New Panvel (W).
Re-accredited ‘A+' Grade with 3.61 by NAAC.
2019-20

A STUDY ON THE COMPARATIVE ANALYSIS OF PUBLIC

SECTOR BANKS AND PRIVATE SECTOR BANKS

0
 A Project Submitted to
University of Mumbai for partial completion of the degree of
Bachelor in Commerce of Accounting & Finance
Under the Faculty of Commerce.
By
Miss. Gaikar Payal Chandrakant
Under the Guidance of
Prof. Dr. Nilesh Eknath Koli

।। विद्या विनयेन शोभते ।।

Janardan Bhagat Shikshan Prasarak Sanstha’s

CHANGU KANA THAKUR
Arts, Commerce and Science College
Sector:11, Khanda Colony, New Panvel (W).
Re-accredited ‘A+' Grade with 3.61 by NAAC.
2019-20

CERTIFICATE

This is certified that Miss Gaikar Payal Chandrakant has worked and duly completed her
project work for the degree of Bachelor of Accounting & Finance under the Faculty of
Commerce in the subject of Financial Accounting and her project is entitled, “A STUDY ON
THE COMPARATIVE ANALYSIS OF PUBLIC SECTOR BANKS AND PRIVATE SECTOR
BANKS” under my supervision.

1
I further certify that the entire work has been done by the learner under my guidance and that
no part of it has been submitted previously for any degree or diploma of any university. It is
her own work and facts reported by her personal finding and investigations.

Name and Signature of guiding teacher

Prof. Nilesh Koli

Date of Submission:

2
 Declaration

I the undersigned miss Gaikar Payal Chandrakant here by, declared that the work embodied
in this project work titled “A STUDY ON THE COMPARATIVE ANALYSIS OF PUBLIC
SECTOR BANKS AND PRIVATE SECTOR BANKS” , forms my own contribution to the
research work carried out under the guidance of Prof. Dr. Nilesh Koli is a result of my own
research work has not been previously submitted to any other university for any other
degree/diploma to this or any other university.

Wherever reference has been made to previous work of others, it has been clearly indicate as
such and included in the bibliography.

I, here by further declared that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name and signature of the learner

Payal Chandrakant Gaikar

Certified by

Name and signature of guiding teacher

Prof. Dr. Nilesh Koli

ACKOWLEDGEMENT

3
To list we all have helped me is difficult because they are so numerous and depth is so
enormous.

I would like to acknowledge the following as being idealistic channel and fresh dimensions in
the completion of this project.

I take this opportunity to thank the University Of Mumbai for giving me chance to do this
project.

I would like to thank my principal, Prof. Dr. Vasant Barhate Sir for providing necessary
facilities required for completion of this project.

I take this opportunity to thank our Coordinator Prof. Dr. Nilesh Koli, for her moral support
and guidance.

I would like to thank my college library, for having provided various reference books and
magazines related to my project.

Lastly, i would like to thank each and every person who directly or indirectly helped me in
completion of project especially my Parents and Peers who supported me throughout my
project.

4
Sr. no Title

1. Introduction

2. Research Methodology

3. Review of Literature

4. Data analysis, Interpretation and Presentation

5. Conclusion and Suggestions

5
Chapter 1:- Introduction

Sr. No . Particular Page No.

1 Introduction
2 Meaning
3 Definition
4 History
5 Banking after independence
in India
6 Types of bank's
7 Indian banking structure
8 Role of Reserve Bank of
India
9 Function of Reserve Bank of
India
10 Importance
11 Services offered by bank's
12 Banking product portfolio
13 Challenge's faced by Indian
banking industry
14 Opportunities

6
INTRODUCTION:

Could you imagine a world without banks? At first, this might sound like a great
thought! But banks (and financial institutions) have become cornerstones of our economy for
several reasons. They transfer risk, provide liquidity, facilitate both major and minor
transactions and provide financial information for both individuals and businesses.

Banking system plays an important role in growth of economy. The banking sector is
the lifeline of any modern economy. It is one of the important pillars of financial system,
which plays a vital role in the success or failure of an economy. It is a well known fact that
banks are one of the oldest financial intermediaries in the financial system. They play a
crucial role in the mobilization of deposits from the disbursement of credit to various sectors
of the economy. The banking system reflects the economic health of the country. The
strength of the economy of any country basically hinges on the strength and efficiency of its
financial system, which in turn depends on a sound and solvent banking system. A Banking
Sector performs three primary functions in economy, the operation of the payment system,
the mobilization of savings and the allocation of saving to investment products.

Banking industry has been changed after reforms process. The Government has taken
this sector in a basic priority and this service sector has been changed according to the need
of present days. Banking sector reforms in India Strive to increase efficiency and profitability
of the banking institutions as well as brought the existing banking institutions face to face
with global competition in globalization process. Different type of banks differs from each
other in terms of operations, efficiency, productivity, profitability and credit efficiency.
Indian banking sector is an important constituent of the Indian Financial System. The banking
sector plays a vital role through promoting business in urban as well as rural area in recent
year, without a sound and effective banking system, India cannot be considered as a healthy
economy.

There seems no uniformity amongst the economist about the origin of the word Bank
According to some authors the word Bank, itself is derived from the word Bancus or Banque
that is a bench. The early bankers, the Jews in Lombardy, transacted their business on
benches in the market place, when, a banker failed, his Banco‘was broken up by the people; it
was called Bankrupt‘. This etymology is however, ridiculed by mcleod on the ground that
The Italian Money changers as such were never called Banchier in the middle ages.‖ It is

7
generally said that the word "BANK" has been originated in Italy. In the middle of 12th
century there was a great financial crisis in Italy due to war. To meet the war expenses, the
government of that period a forced subscribed loan on citizens of the country at the interest of
5% per annum. Such loans were known as 'Compare', 'minto' etc. The most common name
was "Monte'. In Germany the word 'Monte was named as 'Bank' or 'Banke'. According to
some writers, the word 'Bank' has been derived from the word bank.

To meet the war expenses, the government of that period a forced subscribed loan on
citizens of the country at the interest of 5% per annum. Such loans were known as 'Compare',
'minto' etc. The most common name was "Monte'. In Germany the word 'Monte was named
as 'Bank' or 'Banke'. According to some writers, the word 'Bank' has been derived from the
word banks.

1. MEANING OF BANK:

A Bank is an institution which accepts deposits from the general public and extends
loans to the households, the firms and the government. Banks are those institutions which
operate in money. Thus, they are money traders, with the process of development functions
of banks are also increasing and diversifying now, the banks are not nearly the traders of
money, they also create credit. Their activities are increasing and diversifying. Hence it is
very difficult to give a universally acceptable definition of bank.

A bank is a financial institution licensed to receive deposits and make loans. Banks may
also provide financial services such as wealth management, currency exchange, and safe
deposit boxes. There are several different kinds of banks including retail banks, commercial
or corporate banks, and investment banks. In most countries, banks are regulated by the
national government or central bank.

A bank is a business. But unlike some businesses, banks don’t manufacture products
or extract natural resources from the earth. Banks sell financial services such as car loans,
home mortgage loans, business loans, checking accounts, credit card services, certificates of
deposit, and individual retirement accounts.

2. DEFINITIONS OF BANK:

8
 Indian Banking Regulation act 1949 section 5 (1) (b) of the banking Regulation act
1949 Banking is defined as.

Accepting for the purpose of the lending of investment of deposits of money from public
repayable on demand or other wise and withdrawable by cheques, draft, order or otherwise.”

a. “Bank means a bench or table for changing money”.‖

9
 -Greek History

b. “Bank is an establishment for custody of money received from or on Behalf of its

customers. Its essential duty is to pay their drafts unit. Its profits arise from the use of the
money left employed them.”

-Oxford Dictionary

c. “Bank is an institution which traders in money, establishment for money, as also for
making loans and discounts and facilitating the transmission of remittances from one place to
another.”‖

-Western‘s Dictionary

3. HISTORY OF BANKING IN INDIA:

a. ANCIENT INDIA :-

The origin of banking is dates back to the Vedic period. The origin of banking in dates
back to the Vedic period. There are repeated references in the Vedic literature to money lending
which was quite common as a side business. Later, during the time of the Smritis, which
followed the Vedic Period and the Epic age, banking become a full-time business and got
diversified with bankers performing most of the functions of the present day. The Vaish
community,who conducted banking business during this period. As far back as the second or
third century A.D. Manu the great Hindu Jurist, devoted a section of his work to deposits and
advances and laid down rules relating to rates of interest to be charged. Still later, that is during
the Buddhist period, banking business was decentralized and become a matter of volition.
Consequently, Brahmins and Kshatriyas, who were earlier not

permitted to take to banking as their profession except under exceptionally rare circumstances,
also took to it as their business.

During this period banking became more specific and systematic and bills of exchange
came in wide use. ―Shresthis‖ or bankers influential in society and very often acted as royal
treasurers. From the ancient times in India, an indigenous banking system has prevailed. The
businessmen called Shroffs, Seths, Sahukars, Mahajans, Chettis etc. had been carrying on the
business of banking since ancient times. These indigenous bankers included very small money
10
lenders to shroffs with huge businesses, who carried on the large and specialized business even
greater than the business.

b. MUGHAL PERIOD :

Mughal dynasty started with Babur ascending the throne of Agra in 1526 A.D. During
Mughal period the indigenous bankers played a very important role in lending money and
financing of foreign trade and commerce. They were also engaged in the 9 profitable business
of money changing. Banking business was, however particularly during the secular and settled
reign of Emperor Akbar was gave the much needed political stability to the country. Every city,
big or small had a ‗Sheth‘ also known as a ‗Shah‘ or ‗Shroff‘, who performed a number of
banking functions. He was respected by all parts of people as an important citizen. In Principal
cities, besides shroffs, there was a ‗Nagar Sheth‘ or ‗Town Banker‘. They were instrumental
in changing funds from place to place and doing collection business mainly through Hundis.
The Hundis were accepted mode of change of money for commercial transactions.

c. BRITISH PERIOD :-

The seventeenth century witnessed the coming into India of the English traders. The
English traders established their own agency houses at the port towns of Bombay, Calcutta and
Madras. These agency houses, apart from engaging in trade and commerce, also carried on the
banking business. The development of the means of transport and communication causing
deflection of trade and commerce along new routes, changing the nature of trade activities in
the country were the other factor which also contributed to the downfall of the indigenous
bankers. Partly to fill the void caused by their downfall and partly to finance the growing
financial requirements of English trade. The East India Company now came to favour the
establishment of the banking institutions patterned after the Western style.

The first Joint Stock Bank established in the country was the Bank of Hindustan
founded in 1770 by the famous English agency house of M/s. Alexander and Company. The
Bengal Bank and The Central Bank of India were established in 1785. The Bank of Bengal, the
first of the three Presidency Banks was established in Calcutta in 1806 under the name of bank
of Calcutta. It was renamed in 1809 on the grant of the charter as a Bank of Bengal. The two
other presidency banks, namely the bank of Bombay and the Bank of Madras, were established
in 1840 and 1843 respectively. After the Paper Currency Act of 1862, however the right of the
note issue was taken away from them. The Presidency Banks had branches in important towns
11
of the country. The banking crisis of 1913 to 1917 however brought out the serious deficiencies
in the existing banking system in the country showing the need for effective co-ordination
through the establishment of the Central Bank. After 10 repeated efforts, the three presidency
bank was fused into a single bank under the name of the Imperial Bank of India in 1921. The
bank was authorized to hold Government balances and manage public debt. It was not,
however, given power to issue notes. The issuing of the currency continued to be close
preserving of the Government of India. The branches of the bank were to work as clearing
houses. It was mainly a commercial bank competing with other banks. The Imperial Bank of
India was nationalized in 1955 by the SBI act.

In the wake of the Swadeshi Movement, a number of banks with Indian management were
established in the country. The Punjab National Bank Ltd. Was founded in 1895, The Bank of
India Ltd in 1906, The Canara Bank Ltd. In 1906. The Indian Bank Ltd. in 1907, the Bank of
Baroda Ltd. in 1908, and the Central Bank of India Ltd. in 1911. There have been a number of
checks to progress to the Banking Industry in the form of bank failures during the last over 100
years. The series of bank crisis particularly during the time 1913–17, 1939–45 and 1948–53
wiped out many weak units. Loss in trade or industry affected their credit and solvency. It may
however, be stated that one of the important reasons for the last banking crisis of 1948–53 was
the partition of the country into India and Pakistan. Most of the depositors who were Hindus
migrated from Pakistan to India while a major portion of the assets of the banks, which failed
remained in Pakistan. Although, Suggestions have been made from time to time that India
ought to have a Central Bank. The Royal Commission on Indian currency and finance
recommended that a Central Bank should be started in India so as to perfect her credit and
currency organization. From 1927 to 1933, there was a proposal and constitutional reforms law
process has been made. It was enacted in due course and became law on the 6th march 1934
and the Reserve Bank of India started functioning with effect from 1st April 1935. Banking
regulation act was passed in1949.

12
 4. BANKING AFTER INDEPENDENCE IN INDIA:

a. FIRST PHASE: 1948 – 1969:

The country inherited a banking system that was patterned on the British Banking System.
There were many joint stock companies doing banking business and they were concentrating mostly
in major cities. Even the financing activities of these banks were confined to the exports of Jute, Tea
etc and traditional industries like textile and sugar. There was no uniform law governing banking
activity. An immediate concern after the partition of the country was about bank branches located in
Pakistan and steps were taken to close some of them as desire by that country. In 1949, as many as 55
banks either went into liquidation or went out of banking business. Banking did not receive much
attention of the policy makers and disjointed efforts were made towards the regulation of the banking
industry.

b . SECOND PHASE: NATIONALIZATION ERA 1969 – 1990:

After independence, India adopted a PHASE socialist pattern of society as its goal. This
means in non technical language a society with wealth distributed as equitably as possible without
making the country a totalitarian state. In 1955, the Imperial Bank of India was nationalized and its
undertaking was taken over by State Bank of India. Its transformation into SBI has been effective
from July 1, 1955. There were 7 subsidiaries Banks. The State Bank group including State Bank of
Hyderabad, State Bank of Mysore, State Bank of Travancore, State Bank of Bikaner and Jaipur, State
Bank of Indore, State Bank of Patiala and State Bank of Saurashtra. As regards the scheduled banks,
there were complaints that Indian Commercial Banks were directing their advances to the large and
medium scale industries and big business houses and that the sectors demanding priority such as
agriculture, small scale industries and exports were not receiving their due share. This was one of the
chief reasons for imposition of social control by amending the banking regulation act, with effect
from 1st February 1969. On 19th July 1969, 14 major banks were nationalized and taken over they
were as under:

1. The Central Bank of India Ltd.

2. The Bank of India Ltd.

3. The Punjab National Bank Ltd

. 4. The Bank of Baroda Ltd.

5. The United Commercial Bank Ltd.

6. The Canara Bank Ltd.

13
7. The United Bank of India Ltd.

8. The Dena Bank Ltd

9. Syndicate Bank Ltd.

10. The Union Bank of India Ltd.

11. The Allahabad Bank Ltd.

12. The Indian Bank Ltd.

13. The Bank of Maharashtra Ltd

14. The Indian Overseas Bank Ltd

Each bank was having deposits of more than Rs. 50 cr. and having among themselves aggregate
deposits of Rs. 2632 cr. with 4130 branches. On 15th April 1980, six more banks were nationalized.
These banks were:

1. The Andhra Bank Ltd.

2. The Corporation Bank Ltd.

3. The New Bank of India Ltd.

4. The Oriental Bank of Commerce Ltd.

5. The Punjab & Sind Bank Ltd.

6. The Vijaya Bank Ltd.

There were some effects and achievements of nationalized banks. However, there are some
problems relating to NPAs, competition, competency, overstaffing, inefficiency etc. for the
nationalized bank.

c. THIRD PHASE: 1991 – 2002 ECONOMIC REFORMS :-

The Indian economic development takes place in the realistic world from 1991
“Liberalization, Privatization and Globalization” policy. As per “LPG”‖ policy all restriction
on the Indian economy was totally dissolved and the soundest phase for the Indian banking
system adopt over here. This also changed the scenario of the macro-economic world. The

14
budget policy and suggestion provided by shri Dr Man Mohan Singh and the Governor of
Reserve Bank of India. As per the guideline the segments for development is having various
problem and so the importance of public sector cannot be ignored. The country is flooded
with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service
to customers. Phone banking and net banking is introduced. The entire system became more
convenient and swift. Time is given more importance than money. The financial system of
India has shown a great deal of resilience. It is sheltered from any crisis triggered by any
external macroeconomics shock as other East Asian Countries suffered. This is all due to a
flexible exchange rate regime, the foreign reserves are high, the capital account is not yet
fully convertible, and banks and their customers have limited foreign exchange exposure.

5. TYPES OF BANKS :-

In 1955, The State Bank of India Act, was passed, accordingly, ‗The Imperial
Bank of India‘ was nationalized and State Bank of India emerged with the objective of
extension of banking facilities on a large scale, specifically rural and semi – urban area and
for various of the public purposes. In 1969, fourteen major Indian Commercial Banks were
nationalized and in 1980, six more were added on to constitute the public sector banks.
Commercial Banks in India are classified in Scheduled Bank and Non Scheduled Banks.
Scheduled Banks are including 16 nationalized Bank, SBI and its subsidiaries, private sector
banks and foreign banks. Non Scheduled Banks are those included in the second Scheduled
of the RBI Act,1934.

a . Schedule Bank's :-

Scheduled banks are covered under the 2nd Schedule of the Reserve Bank of India Act, 1934.
To qualify as a scheduled bank, the bank should conform to the following conditions:

 A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies for the schedule
bank category

 A bank requires to satisfy the central bank that its affairs are not carried out in a way
that causes harm to the interest of the depositors

15
  A bank should be a corporation rather than a sole-proprietorship or partnership firm

b. Non- Schedule Banks :-

Non-scheduled banks refer to the local area banks which are not listed in the Second
Schedule of Reserve Bank of India. Non-Scheduled Banks are also required to maintain the
cash reserve requirement, not with the RBI, but with them.

c. Co-operative Bank's :-

Co-operative credit society in 1904 led to information of co-operative banks. Presently,

register under co-operative society Act, 1965 and regulated by NABRAD and RBI . These
banks run for social welfare and not for profit maximization. They are owned and controlled
by members itself to provide financial services to agriculturist and small businessman.

d. Foreign Bank's :-

A foreign bank is one that has its headquarters in a foreign country but operates in India as a
private entity. These banks are under the obligation to follow the regulations of its home
country as well as the country in which they are operating. E.g. HSBC Bank, City Bank,
Standard Chartered Bank etc.

e . Old Private Bank's :-

These banks all registered under Companies Act, 1956. Basic difference between
Cooperative bank and Private Banks is its aim. Co-operative banks work for its member and
private banks are work for own profit.

f. New Private Bank's :-

These banks lead the market of Indian banking business in very short period because of its
variety of services and approach to handle customer and also because of long working hours
and speed of services. This is also registered under the Company Act 1956. Between old and
new private banks there is wide difference.

16
6. Indian Banking STRUCTURE:

The structure of Indian banking system that developed during the pre
independence period was without any purposive control and direction. There were no
comprehensive banking laws except the Bank Charter Act 1876 which regulated the three
presiding bank and the Indian Companies Act 1913 provided some safe guards against bank
failures.

7. BANKING STRUCTURE IN INDIA:

The structure of Indian banking system that developed during the pre
independence period was without any purposive control and direction. There were no
comprehensive banking laws except the Bank Charter Act 1876 which regulated the 18 three
presiding bank and the Indian Companies Act 1913 provided some safe guards against bank
failures.

The banking system of India consists of the central bank (Reserve Bank of India -
RBI), commercial banks, cooperative banks and development banks (development finance
institutions). These institutions, which provide a meeting ground for the savers and the
investors, form the core of India’s financial sector. Through mobilization of resources and
their better allocation, banks play an important role in the development process of
underdeveloped countries.

17
8. ROLE OF RESERVE BANK OF INDIA :-

The Reserve Bank of India (RBI) is the central banking system of India and controls
the monetary policy of the Rupee as well as currency reserves. The institution was
established on 1 April 1935 during the British Raj in accordance with the provisions of the
Reserve Bank of India Act, 1934 and plays an important part in the development strategy of
the government. It is a member bank of the Asian Clearing Union. The Reserve Bank of India
was constituted under the reserve Bank of India Act, 1934 to regulate the issue of bank notes
and the maintenance of reserves with a view to securing the monetary stability in India and
generally to operate the currency and credit system of the country to its advantage.

18
 The central bank was founded in 1935 to respond to economic troubles after th First
World War. The Reserve Bank of India was set up on the recommendations of the Hilton
Young Commission. The commission submitted its report in the year 1926, though the bank
was not set up for another nine years. The Preamble of the Reserve 19 Bank of India
describes the basic functions of the Reserve Bank as to regulate the issue of bank notes, to
keep reserves with a view to securing monetary stability in India and generally to operate the
currency and credit system in the best interests of the country. The Central Office of the
Reserve Bank was initially established in Kolkata, Bengal but was permanently moved to
Mumbai in 1937. The Reserve Bank continued to act as the central bank for Myanmar till
Japanese occupation of Burma and later up to April 1947, though Burma seceded from the
Indian Union in 1937. After partition, the Reserve Bank served as the central bank for
Pakistan until June 1948 when the State Bank of Pakistan commenced operations. Though
originally set up as a shareholders‘ bank, the RBI has been fully owned by the government of
India since its nationalization in 1949.

Between 1950 and 1960, the Indian government developed a centrally planned
economic policy and focused on the agricultural sector. The administration nationalized
commercial banks and established, based on the Banking Companies Act, 1949 (later called
Banking Regulation Act) a central Bank regulation as part of the RBI. Furthermore, the
central bank was ordered to support the economic plan with loans. As a result of bank
crashes, the reserve bank was requested to establish and monitor a deposit insurance system.
It should restore the trust in the national bank system and was initialized on 7 December
1961. The Indian government founded funds to promote the economy and used the slogan
Developing Banking. The Gandhi administration and their successors restructured the
national bank market and nationalized a lot of institutes. As a result, the RBI had to play the
central part of control and support of this public banking sector. Between 1969 and 1980 the
Indian government nationalized 20 banks. The regulation of the economy and especially the
financial sector was reinforced by the Gandhi administration and their successors in the
1970s and 1980s. The central bank became the central player and increased its policies for a
lot of tasks like interests, reserve ratio and visible deposits. The measures aimed at better
economic development and had a huge effect on the company policy of the institutes. The
banks lent money in selected sectors, like agribusiness and small trade companies. The
branch was forced to establish two new offices in the country for every newly established
office in a town. The oil crises in 1973 resulted in increasing inflation, and the RBI restricted
19
monetary policy to reduce the effects. A lot of committees analyzed the Indian economy
between 1985 and 1991. Their results had an effect on the RBI. The Board for Industrial and
Financial Reconstruction, the Indira Gandhi Institute of Development Research and the
Security & Exchange Board of India investigated the national economy as a whole, and the
security and exchange board proposed better methods for more effective markets and the
protection of investor interests. The Indian financial market was a leading example for so-
called "financial repression" (Mackinnon and Shaw). The Discount and Finance House of
India began its operations on the monetary market in April 1988; the National Housing Bank,
founded in July 1988, was forced to invest in the property market and a new financial law
improved the versatility of direct deposit by more security measures and liberalization. The
national economy came down in July 1991 and the Indian rupee was devalued. The currency
lost 18% relative to the US dollar, and the Narsimahmam Committee advised restructuring
the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio.
New guidelines were published in 1993 to establish a private banking sector. This turning
point should reinforce the market and was often called neo-liberal The central bank
deregulated bank interests and some sectors of the financial market like the trust and property
markets.

The National Stock Exchange of India took the trade on in June 1994 and the RBI
allowed nationalized banks in July to interact with the capital market to reinforce their capital
base. The central bank founded a subsidiary company—the Bharatiya Reserve Bank Note
Mudran Limited—in February 1995 to produce banknotes. The Foreign Exchange
Management Act from 1999 came into force in June 2000. It should improve the foreign
exchange market, international investments in India and transactions. The RBI promoted the
development of the financial market in the last years, allowed online banking in 2001 and
established a new payment system in 2004 - 2005 (National Electronic Fund Transfer). The
Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was
founded in 2006 and produces banknotes and coins.

9. FUNCTIONS OF RESERVE BANK OF INDIA :-

As a central bank, the Reserve Bank has significant powers and duties to perform. For
smooth and speedy progress of the Indian Financial System, it has to perform some 21

20
important tasks. Among others it includes maintaining monetary and financial stability, to
develop and maintain stable payment system, to promote and develop financial infrastructure
and to regulate or control the financial institutions.

A. Traditional Functions of Reserve Bank of India :-

a. Issue of Currency :-

RBI undertakes issue of currency and the system adopted in India is the minimum
reserve system. All the currency notes from Rs. 2, Rs 5, Rs. 10, Rs. 50, Rs. 100, Rs. 500 and
Rs. 1,000 are issued by RBI and they carry the signature of Reserve Bank of India Governor.
They are called unlimited legal tender and any amount of payment can be made with these
currencies subject to the regulations of Income Tax Act, 1961.

The one rupee note and smaller coins are issued by the government and they are called
limited legal tender which means that they can be demanded as a medium of payment only to
a limited extent. The one rupee note carries the signature of secretary to the Ministry of
Finance.

b. Banker to Government :-

Reserve Bank of India acts as a banker to the government by maintaining the

account of Central government and also that of the State government. It also provides
overdraft facility to both State and Central governments. The public borrowings of
government are done through Reserve Bank of India. Payments to the government such as
income tax is also accepted by Reserve Bank of India.

c. Bankers’ Bank :-

The other traditional functions of RBI consisting of bankers’ bank is done in the
following manner:

 Issuing license to banks and allowing them to open branches under the provisions of
Banking Regulation Act.

 RBI also controls the working of commercial banks and undertakes periodical
inspection of these banks.

21
  In case of violation of the Banking Regulation Act by any of the commercial banks,
RBI will order for the closure of these banks.

 The management of the commercial banks will also be controlled by Reserve Bank of
India. All the top level management appointments of commercial banks require prior
approval of RBI.

 The credit requirements of commercial banks are met by discounting and re-
discounting eligible securities at the bank rate.

d. Credit Control functions :-

RBI exercise the following credit control measures :

 The quantitative weapons of bank rate, open market operation and variable reserve
ratio are exercised by Reserve Bank of India.

 The modern weapon of selective credit control is also being exercised by RBI
particularly on agricultural commodities.

 The seasonal fluctuations in the money market is balanced by Reserve Bank of India
through adequate finance during a period of financial stringency.

e. RBI acts as lender of last resort :-

The commercial banks have to maintain as a part of statutory requirements certain

percentage of their deposits with RBI which is called cash reserve ratio.

By increasing or decreasing this percentage of cash reserve ratio, RBI allows adequate
funds for lending purpose by commercial banks. When all the commercial banks are
depositing with Reserve Bank of India in the form of cash reserve ratio, a sizable amount of
fund is available with RBI. This fund will be extended by RBI to any commercial bank which
is facing crisis.

f. Exchange control function :-

In India, we have the exchange control since independence and RBI is given enough
powers to exercise exchange control. Without the license of Reserve Bank of India no one
can deal in foreign exchange. The exchange rate with different foreign currencies is provided

22
by RBI to its authorized dealers consisting of nationalized and other private commercial
banks.

All the foreign exchange earnings in the country are kept by RBI in the form of foreign
exchange reserve. RBI also has the responsibility of maintaining the value of domestic
currency and take adequate measures so that its value does not depreciate abnormally in
relation to foreign currencies.

g. Clearing house :-

In all big cities Reserve Bank of India has its branches and clearing house operations
are undertaken. Where RBI does not have its branch, the clearing house operations are
undertaken by State Bank of India and its subsidiary banks. All the commercial banks in
India are members in clearing house and they take part in the clearing of cheques.

B. DEVELOPMENTAL FUNCTIONS:

Along with the routine traditional functions, central banks especially in the
developing country like India have to perform numerous functions. These functions are
country specific functions and can change according to the requirements of that 23 country.
The RBI has been performing as a promoter of the financial system since its inception. Some
of the major development functions of the RBI are maintained below.

a. Development of Agriculture :-

Right from the beginning, RBI has an Agriculture Credit Department. The
principal function of this department is to conduct research regarding the various problem of
agricultural credit.

b. Promotion of Industrial finance :-

Rapid industrial growth requires the adequate and timely availability of credit to
the small, medium and large industry. For this RBI has been instrumental in setting up special
financial institutions such as ICICI, IDBI, SIDBI and EXIM bank etc. Reserve bank provides
significant financial assistance for the industrial development of the country.

c. Promotion of expert through Refinance :-

23
 RBI tries to encourage the facilities for providing finance for foreign trade
especially export from India. The Export-import bank of Indian(EXIM bank of Indian) and
the Export Credit Guarantee Corporation of India(ECGC) are supported by refinancing their
lending for export purposes.

d. Development of Bill markets reserve :-

Bank has made concerted efforts for the development of bill market. In this regard,
it initiated its first plan in 1952. RBI made this plan applicable to all the scheduled banks
from 1954 onwards. In 1958 export bills also came within the purview of this plan. In 1970
Reserve bank started New Bill Market program. As a result of the development of the bill
market, it can be possible to make the monetary policy more successful.

e. Development and Regulation of Banking System :-

Because of the notable efforts of RBI that banking system in Indian ha assumed the
status of the development banking. Also, there is a notable spread of branch banking in rural
areas. RBI arranged appropriate credit facilities for the priorities sectors. In order to regulate
the functions of the banks, In 1993, Board of financial Supervision came into existence. Since
1994, banks in the private sector got licences.

10. Importance of banking in India :-

Before the banking system originated, banking activities were performed by merchants,
money lender, and individuals. This was certainly not the best way to handle currency and
people’s personal wealth. The system lacked regulations and standardization making general
public vulnerable to debauchery and fraud. Therefore, there was an urgent need of organized
banking sector that will enable smooth functioning of the economy and safe way to handle
money. Additionally, a well-organized banking system provides:

 Money for the economic growth of the country.

 It is the main pillar of the financial sector of the country.

24
  It offers a safe place to the individuals or group of individuals to deposit their wealth
and keep it secure.

 It offers loans for the personal or developmental purpose to dealers, households, small
and large enterprises.

 It provides government money and power to carry out development work.

 To equally distribute the money to the citizens of the country and prevent the focus of
financial power in the hands of a few.

 It helps in implementing monetary policies.

 It ensures financial stability in the country.

 It provides financial assistance to the industrial sector of the economy.

 It helps in generating employment opportunity.

 In India, it plays a major role in providing assistance to the agricultural sector.

 It ensures balanced economic development of the country.

 It enables capital formation and promotes the habit of saving.

 And provides finance for trade and industries that is essential to our economic
development.

11. Services offered by bank :-

Apart from primary jobs accepting deposits and granting loans, there are several other
functions of banks in the modern banking era. Consider a few services offered by the banks.

1. Payments Remittance Services :-

25
 This is another important function of banks that enables us to transfer funds
from one account to another, from one city to another. Alongside, modern banking systems
allow us to make the direct online money transfer, pay utility bills, collection of cheques, and
more. With the evolution of technology, payments can be made and collected from any part
of the world.

2. Overdraft :-

Overdraft services allow account holders to withdraw more than what their
deposits allow. Though, interest is charged on the overdrawn amount. This is one of the many
ways banks lend money to their customers.

3. Currency Exchange :-

Imagine if there were no banks where you would acquire foreign currency for
travel or trading purposes. The banks provide foreign currency exchange with local currency
in an easy manner.

4. Consultancy :-

Modern banks have a holistic approach and they aim to provide all kinds of
services to their customers that involve their financial situation. Modern banks are hiring
financial and legal experts to provide advice and solutions about customers wealth,
investment, and trading.

5. Online Banking :-

In the digital world, every bank is striving to make space in online banking
world. With the help of the internet, banks allow their customers to perform banking
activities through their official website. This allows the customer to access their account 24/7
without having to visit a physical branch.

6. Mobile Banking :-

Similarly, banks are also providing mobile banking services wherein

customers can perform banking activities through their smartphone apps.

7. Home Banking :-

26
 Home banking is another rising trend wherein banking transaction can be made
from home directly. These services require an internet connection or access to online
banking.

8. Credit and Debit Cards :-

Most of the banks offer credit and debit cards to their customers that can be
used to purchase products and services, and even borrow or withdraw money. This is one of
the most important steps towards a cashless society.

9 . Lockers :-

Banks also offer safe deposit to their clients to store their valuables safely, at
minimal fees.

10. Money Transfer :-

There are several ways banks offer to transfer money from one part of the
world to the other with the help of demand drafts, money orders, cheques, online banking,
and more.

11. Investment Banking :-

Many banks now offer financial services to their customers. They help them
make the best of their wealth by offering several investment products.

12. Wealth Management :-

Wealth management is one of the many investment services offered by

banks. It allows the customers to plan their finances to grow long-term wealth.

Apart from all this, banks also offer several auxiliary services to the customers
such as solvency certificates, mutual funds, insurance services, gold coins, and more.

12. Banking products portfolio :-

1. DEPOSITS :-

27
 There are many products in retail banking like Fixed Deposit, Savings Account,
Current Account, Recurring Account, NRI Account, Corporate Salary Account, Free Demat
Account, Kid‘s Account, Senior Citizen Scheme, Cheque Facilities, Overdraft Facilities, Free
Demand Draft Facilities, Locker Facilities, Cash Credit Facilities, etc. They are listed and
explained as follows :

1.1 FIXED DEPOSIT :-

The deposit with the bank for a period, which is specified at the time of making the
deposit, is known as fixed deposit. Such deposits are also known as FD or term deposit. FD is
repayable on the expiry of a specified period. The rate of interest and other terms and
conditions on which the banks accepted FD were regulated by the RBI, in section 21 and
35Aof the Banking Regulation Act 1949.Each bank has prescribed their own rate of interest
and has also permitted higher rates on deposits above a specified amount. RBI has also
permitted the banks to formulate FD schemes specially meant for senior citizen with higher
interest than normal.

1.2 SAVING ACCOUNT :-

Saving bank account is meant for the people who wish to save a part of their current
income to meet their future needs and they can also earn in interest on their savings. The rate
of interest payable on by the banks on deposits maintained in savings account is prescribed
by RBI. Now-a-days the fixed deposit is also linked with saving account. Whenever there is
excess of balance in saving account it will automatically transfer into Fixed deposit and if
there is shortfall of funds in savings account, by issuing cheque the money is transferred from
fixed deposit to saving account. Different banks give different name to this product.

1.3 CURRENT ACCOUNT :-

A current account is an active and running account, which may be operated upon any
number of times during a working day. There is no restriction on the number and the amount
of withdrawals from a current account. Current account, suit the requirements of a big
businessmen, joint stock companies, institutions, public authorities and public corporation
etc.

1.4 RECURRING DEPOSIT :-

28
 A variant of the saving bank a/c is the recurring deposit or cumulative deposit a/c
introduced by banks in recent years. Here, a depositor is required to deposit an amount
chosen by him. The rate of interest on the recurring deposit account is higher than as
compared to the interest on the saving account. Banks open such accounts for periods ranging
from 1 to 10 years. There curing deposit account can be opened by any number of persons,
more than one person jointly or severally, by a guardian in the name of a minor and even by a
minor.

1.5 NRI ACCOUNT :-

NRI accounts are maintained by banks in rupees as well as in foreign currency.

Four types of Rupee account can be open in the names of NRI: a. Non Resident Rupee
Ordinary Account (NRO) b. Non Resident External Account (NRE) c. Non Resident ( Non
Reportable Deposit Scheme ) ( NRNR) d. Non Resident ( special)Rupee Account Scheme (
NRSR) Apart from this, foreign currency account is the account in foreign currency. The
account can be open normally in US Dollar, Pound Sterling, and Euro. The accounts of NRIs
are Indian millennium deposit, Resident foreign currency, housing finance scheme for NRI
investment schemes.

1.6 CORPORATE SALARY ACCOUNT :-

Corporate Salary account is a new product by certain private sector banks, foreign
banks and recently by some public sector banks also. Under this account salary is deposited
in the account of the employees by debiting the account of employer. The only thing required
is the account number of the employees and the amount to be paid them as salary. In certain
cases the minimum balance required is zero. All other facilities available in savings a/c is also
available in corporate salary account.

1.8 KID’S ACCOUNT (MINOR ACCOUNT) :-

Children are invited as customer by certain banks. Under this, Account is opened in
the name of kids by parents or guardians. The features of kid‘s account are free personalized
cheque book which can be used as a gift cheque, internet banking, investment services etc.

29
1.9. SENIOR CITIZENSHIP SCHEME :-

Senior citizens can open an account and on that account they can get interest rate
somewhat more than the normal rate of interest. This is due to some social responsibilities of
banks towards aged persons whose earnings are mainly on the interest rate.

2. LOANS AND ADVANCES :-

The main business of the banking company is lending of funds to the constituents, mainly
traders, business and industrial enterprises. The major portion of a bank‘s funds is employed
by way of loans and advances, which is the most profitable employment of its funds. There
are three main principles of bank lending that have been followed by the commercial banks
and they are safety, liquidity, and profitability. Banks grant loans for different periods like
short term, medium term, and long term and also for different purpose.

2.1 PERSONAL LOANS :-

This is one of the major loans provided by the banks to the individuals. There the borrower
can use for his/her personal purpose. This may be related to his/her business purpose. The
amount of loan is depended on the income of the borrower and his/her capacity to repay the
loan.

2.2 HOUSING LOANS :-

NHB is the wholly own subsidiary of the RBI which control and regulate whole industry as
per the guidance and information. The purpose of loan is mainly for purchase, extension,
renovation, and land development.

2.3 Car Loans :-

Buying a car can definitely instil a great sense of joy and happiness in you. A car will
remain as your asset and it is going to be one of the biggest investments that you make. A car
loan helps you to pave the path between your dream of owning a car and actually buying your
car. Since credit reports are crucial for judging your eligibility towards any loan, it is good to

30
have a high credit score when you apply for a car loan. The loan application will get
approved easily and you might get a lower rate of interest associated with the loan.

Car loans are secured loans. If you fail to pay your installments, the lender will take
back your car and recover the outstanding debt.

2.4 . Two-Wheeler Loans :-

A two-wheeler is pretty essential in today’s world. May it be going for a long ride or
a busy road in a city – bikes and scooters help you to commute conveniently. A two-wheeler
loan is easy to apply for. This amount you borrow under this loan type helps you to purchase
a two-wheeler. But if you do not pay the installments on time and clear your debt, the insurer
will take your two-wheeler to recover the loan amount.

2.5 . Education Loans :-

If you wish to get higher education in a reputed university in a different country,

education loans can help you a lot. These loans are opted by students who wish to study
further but need financial support for pursuing the courses. An education loan covers
expenses like college/university fees, library charges, travel costs related to their course, etc.

In order to be eligible for an education loan, you must submit all the required
documents including invitation letter from the university, educational qualification
certificates, etc.

13. CHALLENGES FACED BY INDIAN BANKING INDUSTRY :-

Developing countries like India, still has a huge number of people who do not have
access to banking services due to scattered and fragmented locations. But if we talk about
those people who are availing banking services, their expectations are raising as the level of
services are increasing due to the emergence of Information Technology and competition.
Since, foreign banks are playing in Indian market, the number of services offered has
increased and banks have laid emphasis on meeting the customer expectations. Now, the
existing situation has created various challenges and opportunity for Indian Commercial
Banks. In order to encounter the general scenario of banking industry we need to understand
the

31
 challenges and opportunities lying with banking industry of India :

a. Non-performing Assets (NPAs) :-

One might refer to the term NPAs as bad loans and will surely sight the problems in
the agricultural and corporate sector. However, there’s more explanation of this. Out of the
total NPAs in the country which has crossed 10 lakh crores lately, more than 70% are from
the corporate sector. On the other hand, farmers have been recorded to default on 8% of the
total NPAs.

Another interesting statistic is that the primary sector has defaulted on 6% of the total amount
borrowed. Indian farmers have protested for easing their repayment guidelines and for a
waiver in some cases. One might argue that the nation’s wealth shouldn’t be degraded by
such waivers. Although, most of the farmers are willing to pay back their loans, but are not
able to. The reasons being lack of infrastructure, monsoon failures, non-implementation of
Minimum Support Prices for their crops and numerous uncontrollable factors. The farmers’
march in Mumbai, the protests against anti-farmer policies in the national capital are some of
the recent examples.

The other side of the coin is entirely different, the corporate sector in most of the
cases has been found to default due to intentional mismanagement of funds. The worrying
part is that only 12 companies constitute more than 25% NPAs in the country. The banks
hope for a lower haircut and about 5 among these 12 have been settled after strategic
acquisitions.

b. Frauds :-

People tend to interchangeably use the words NPAs and frauds in the banking
sector. However, there is a line that differentiates the two. An NPA may or may not be
intentional and the borrower might want to pay back but isn’t able to. On the other hand, a
fraud is an intentional act by the borrower where there is a scam of funds involved. Such
frauds might include Accounting Frauds, Demand Draft Fraud, Uninsured Deposits, Bill
Discounting Fraud, Fraudulent Loans, Cheque Kiting, and the list continues. The recent PNB
case where fake Letter of Undertakings worth Rs. 11,000 crores were issued is the most
relevant example. Other examples include Vijay Mallya accused of defrauding a consortium
of lenders for Rs.9,000 crores and Rotomac Global accused of allegedly cheating a
consortium of 7 lenders for Rs. 3700 Crores.
32
 c. Rural Market :-

Approximately 69% of India’s population resides in rural areas. Lately, there have
been some ambitious targets by the government like access to bank accounts to all the
households of the country. But even if everyone gets access to a bank account, many villages
do not have adequate branches and ATMs to feed the market in rural areas. Currently, the
banking sector does not have the infrastructure to reach out to the market at the bottom of the
pyramid (BOP). Many economists state that the infrastructure will always be inadequate
owing to a large population. But there is a need for better supervision and monitoring
framework.

d. TECHNOLOGICAL PROBLEMS :-

That is true that Indian banks were already started computerized workings and so many
other technological up gradation done but is this sufficient? In metro cities Indian local banks
are having good comparable technology but that cannot be supported and comparable by the
whole network of other cities and village branches.

e. CORPORATE GOVERNANCE :-

Banks not only accept and deploy large amount of uncollateralized public funds in
fiduciary capacity, but they also leverage such funds through credit creation. Banks are also
important for smooth functioning of the payment system. Profit motive cannot be the sole
criterion for business decisions. It is a significant challenge to banks where the priorities and
incentives might not be well balanced by the operation of sound principles of Corporate
Governance. If the internal imbalances are not rebalanced immediately, the correction may
evolve through external forces and may be painful and costly to all stakeholders. The focus,
therefore, should be on enhancing and fortifying operation of the principles of sound
Corporate Governance.

f. COMPETITION :-

With the ever increasing pace and extent of globalization of the Indian economy and
the systematic opening up of the Indian Banking System to global competition, banks need to
equip themselves to operate in the increasingly competitive Environment. This will make it
imperative for Banks to enhance their systems and procedures to international standards and
also simultaneously fortify their financial positions.

33
14. Opportunities :-

a. Targeting Markets at BOP :-

Any situation which is a challenge to all can be an opportunity to an innovator.

Targeting the poor is difficult for any industry and innovations are required to penetrate the
rural market. A similar opportunity was seen by Citibank when it first started its $25 deposit-
based banking services, called Suvidha, in Bangalore. In the first year itself, Citibank
enrolled 1,50,000 customers. Currently, many banks offer similar services to consumers in
rural as well as urban areas.

The opportunity that is waiting to be exploited is digital banking in rural areas.

Currently, people are not really equipped with the latest technology in rural areas, but this is
the opportunity for innovations. The dominant logic of the banks that the rural population
does not want to be equipped with the technology must be kept aside in order to come up
with some innovative way to use these opportunities.

b. Blockchain :-

Today, many banks and financial organizations have accepted the potential of
blockchain technology owing to the overwhelming popularity of cryptocurrencies and wide
dissemination of blockchain recently. According to Accenture, the world banking sector will
save up to $20 billion by 2022 by implementing blockchain. Banks like Kotak Mahindra
Bank, Axis Bank, and Yes Bank have partnered with global blockchain firm, Ripple to
provide near-instant cross border remittances. Currently, these remittances take anywhere
between half a day to 3 days and banks are hoping to reduce the transaction times and the
costs too will reduce by 10-40%.

Blockchain also provides a high level of safety in storing and transmitting data, eases
the KYC process, has an open and transparent yet secure infrastructure, is decentralized and
lowers the operation costs. For example, a “private key” is needed to access data from
blockchain nodes and whenever a request is made using this key, blockchain records it and
NSE gets to know about it; thus, flagging the potential illegal downloads. Blockchain is not
just a dreamy idea and is being implemented successfully as cited above and its further
implementation in financial institutions is sure to increase.

34
c. Peer-to-Peer (P2P) Lending :-

P2P lending is a method of debt financing that enables individuals to borrow and lend
money without using an official financial institution as an intermediary. As per RBI, P2P
lending service providers are classified as NBFCs and currently comprises seven platforms.
Although P2P lending removes the middlemen from the process, it involves more time, effort
and risk than the conventional methods. The underlying principle is “high return, high risk”.
A lender’s potential return would depend on how much risk he/she is willing to take. Higher
risks mean higher default rates.

Considering these things, RBI has taken cautious steps in this direction and has capped
the exposure that a potential lender can take at 10 lakhs. Also, P2P NBFCs cannot lend for
more than 36 months. The trend of default rates in India will be clearer after a lending cycle
i.e. in about two years. The current regulations will allow the market to shape during this
period and depending on how things turn out in the future, RBI might loosen some
regulations. Overall, the situation for this market is optimistic with some caution.

d. Artificial Intelligence and Big Data :-

AI is a fast evolving and go-to technology for companies across the world to
personalize experiences. The banking sector is one of the first adopters of this technology and
is exploring and implementing technology in various ways. The fundamental applications of
AI include bringing smarter chatbots for customer service currently used by HDFC Bank,
SBI, ICICI and Axis Bank, personalizing services for individuals and placing AI robot for
self-service at banks. For example, Canara Bank has placed two AI robots named Mitra and
Candi at their branch in Bengaluru. Some common uses of AI in banks are:

Fraud Detection

Risk Management

Digitization and automation in back office processing

Wealth Management for masses

Image/face recognition enabled ATMs

This showcases that AI is not used only for customer support and has a wider range of
applications in the industry. For example – payment companies use AI to analyze user’s
35
payment patterns and then prompts the user to the preferred payment tool that best suits a
purchase during checkout. Implementation of this technology comes with challenges. One
key challenge is the availability of the right data as any vulnerability arising from unverified
information is a serious concern for business. Another key concern is the diverse and
multilingual population of India with 150+ languages. A significant amount of progress is
required on the NLP front in order to effectively reach a wider range of the population. One
more key issue is that AI technology is a threat to the redundant employees in the banking
sector and mass adoption of AI may lead to grave unemployment. Thus, for successful and
effective implementation of AI, identification of right cases for use of AI with the help of
experts and data scientists will be the key for the Indian banking sector.

36
2. Research and Methodology

 Objective of study

 Hypotheses of study

 Limitation of study

 Significance of study

 Scope of study

 Sample size

 Data collection

37
Chapter 2. Research and Methodology

1. Objective of study :-

 To analyse financial performance of private sector bank's and public sector bank's

 To compare financial performance of private sector bank's and public sector bank's

 To give suggestions and recommendations

2. Hypotheses of the study :-

 Null Hypothesis

 Ho: There is no significant difference between Profitability to Return on Net worth,

Return on Capital Employed, Return on Assets and total debts/equity selected to
private companies.

 Alternative Hypothesis

There is significant difference between profitability to Return on Net worth, Return on

Capital Employed, Return on Assets and total debts/equity selected to private companies.

3. Limitation of study :-

 The study covers only 3 private sector bank's and 3 public sector bank's

 The data which has been used for the study mainly secondary data, so limitation of
secondary data remain with it and also applies to the study

 The study cover only four years data .

4. Significance of study :-

This study is useful and important for the major aspect such as:

 This study is important for the comparison of financial analysis of private sector
bank's and public sector bank's

 This study analyses the banking sector in India.

38
  This study provides financial performance of the bank's as well as provides which
sector bank's is better or earning more profit and which sector bank's is suffering from
losses.

 This study is very helpful for taking financial decisions

5. Scope of the study :-

The study mainly attempts to compare the comparative analysis of private sector bank's and
public sector bank's in India. The present study is to attempt to compare the comparative
analysis such as return on asset, net interest income, operating profit, net profit. This can be
help to forecast which sector bank's is earning more profit or which one is in loss. So the
project has wide scope to help the managers as well as to the public to know the status of the
bank's.

6. Sample Size :-

a. Number of Companions

A sample of six banks i.e. three from public sector and three from private sector . The
banks match under this criteria are State Bank of India, Bank of Baroda,and IDBI Bank from
public sector and HDFC Bank Ltd., ICICI Bank Ltd. and Axis Bank from private sector.

b . Number of years :-

Four years data has been collected i.e. from the financial year 2015-16 to 2018-19.

7. Data collection :-

Data is collected from the annual reports of each bank's .

8. Tools of analysis :-

T-Test, mean and graphs are used to analyze and compare financial performance of public
sector banks and private sector banks.

39
Chapter 3 : Review of literature

Introduction

Review of literature - different research paper

Tabulation view

Conclusion

40
 Chapter 3: Literature review

Introduction :-

Banks are key financial intermediaries or institutions that serves as "middle man" in the
transfer of funds from servers to those who invent in real assets as house, equipment and
factories. In performing this function financial intermediaries improve the well being of both
serve and investors. By improving economic efficiency they raise living standards of the
society. The banking sector is considered to be an important source of financing for most
businesses. They play a very important role in the efforts to attain stable prices, high level of
employment and sound economic growth. They make funds available to meet the needs of
individuals, businesses and the government. In doing this, they facilitate the flow of goods and
services and the activities of government.

Public sector banks are the banks in which the government has a major holding. Private
sector bank's are those bank's in which the equity is held by private shareholders, i.e., there is
no government shareholding. Public sector bank's dominated the Indian banking industry in
the initial stages. Financial sector reforms made many changes in banking industry and private
sector bank's with the help of advanced technology and professionalized management achieved
a challenging position thereby causing a great threat to the public sector banks.

Research on bank's :-

Anand K (2015) , describe bank from a on equity ratio, capital adequacy

ratio, credit deposit ratio. The above period is chosen since it is very important
to know how different bank's performed during the recession and inflation
duration. We have done a field study taking ICICI bank as private sector bank
and SBI bank as a public sector bank to better understand the above argument.
1

1
. Anand. K (2015), "Financial performance of public sector banks and private sector banks in india",
"ResearchExplorer" Vol. IV : Issue.11 ; July - December 2015.

41
Conclusion :-

42
BRIEF HISTORY & DEVELOPMENT OF SELECTED BANKS UNDER STUDY:

1. PUBLIC SECTOR BANK:

1.1 State Bank of India :-

The bank descends from the Bank of Calcutta, founded in 1806, via the Imperial Bank
of India, making it the oldest commercial bank in the Indian subcontinent. The Bank of
Madras merged into the other two "presidency banks" in British India, the Bank of Calcutta
and the Bank of Bombay, to form the Imperial Bank of India, which in turn became the State
Bank of India in 1955.[7] The Government of India took control of the Imperial Bank of
India in 1955, with Reserve Bank of India (India's central bank) taking a 60% stake,
renaming it the State Bank of India.

An act was accordingly passed in parliament in May – 1955 and The State Bank of India
was constituted on 1st July – 1955 as a successor to The Imperial Bank of India under State
Bank of India Act – 1955. Later the State Bank of India (Subsidiary Banks) Act was passed
in 1959, enabling the State Bank of India to take over state associated banks as its
subsidiaries.

The State Bank of India (SBI) is an Indian multinational, public sector banking and
financial services statutory body. It is a government corporation statutory body headquartered
in Mumbai, Maharashtra. SBI is ranked as 236th in the Fortune Global 500 list of the world's
biggest corporations of 2019.[5] It is the largest bank in India with a 23% market share in
assets, besides a share of one-fourth of the total loan and deposits market

2019 State Bank of India (SBI) has bound with

National Investment and Infrastructure Fund
(NIIF) to provide a financing solution to
infrastructure sectors.

43
2018 Jio and SBI entered into a partnership to
increase SBI’s digital customer base multi-
fold.

2017 Acquired State Bank of Travancore, State

Bank of Patiala, State Bank of Hyderabad,
State Bank of Bikaner & Jaipur,State Bank
of Mysore and Bhartiya Mahila Bank
(BMB).

2011 State Bank of India recorded debit card base

of over 70 million.

2009 State Bank of India, entered into an

agreement with the Government of Gujarat to
create a fund of Rs 5.00 billion (US$ 103.41
million) for investing in equity of
infrastructure projects.

2004 State Bank of India, Bangalore Circle, has

announced its tie-up with New India
Assurance Company Ltd (NIAC), for
distribution of National Association of
Insurance Commissioners (NIAC) general
insurance products in Karnataka.

2001 The Bank has incorporated a subsidiary SBI

Life Insurance Company Ltd, for doing life
insurance business.

44
 1998 The State Bank of India on Jan 27 took step
into the payment cards business with a joint
venture agreement with US-based financial
services giant, General Electric Capital
Corporation (GE Capital).

The bank had sponsored 30 regional

1987 bnks covering 66 backward and underbanked
districts in the country.

1955 On July 1 State Bank of India was constituted

under the State Bank of India Act 1955.

1.2 . BANK OF BARODA :-

Bank of Baroda (BOB) is an Indian Multinational, public sector Banking and financial
services company. It is the second largest public sector bank in India post merger[8] with a
business mix of close to US$225 billion.Based on 2019 data, it is ranked 1145 on Forbes
Global 2000 list.[9][10] BoB has total assets in excess of ₹ 3.58 trillion (making it India's 2nd
biggest bank by assets),[11] a network of 9583 branches in India and abroad, and 10442
ATMs as of July, 2017.[12] The government of India announced the merger of Bank of
Baroda, Vijaya Bank and Dena Bank on September 17, 2018, to create the country's third
largest lender. The amalgamation is the first-ever three-way consolidation of banks in the
country, with a combined business of Rs 14.82 lakh crore, making it the third largest bank
after State Bank of India (SBI) and ICICI Bank.

Today, the bank enjoys a prominent presence all around and is serving with 9898
branches and 126 controlling offices of its overseas subsidiaries have more than footage in 16
countries overseas.
45
1.3. INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI):

The Industrial Dvelopment Bank of India (IDBI) has had a pioneering role in fulfilling
its mission of promoting industrial growth in tune with national plans and priorities. It
support was instrumented in establishing a well developed, diversified and efficient industrial
structure in the country. Since inception, the Bank has, besides meeting the increasing and
diverse financial requirements of industry added a qualitative dimension to the process of
industrial development in the country.

Today, IDBI is one of India’s largest banks. It has essayed a significant role in the
country’s industrial and economic progress for 34 over 40 years – first as a Development
Financial Institution and now as a full service commercial bank.

The critical role played by IDBI in encouraging industrial development is reflected in

its flows of assistance over the years.

Established on July 1, 1964, the IDBI has been operating for more than two decades as
the apex national development bank in the field of industrial finance in India. During the first
twelve years, it operated as a wholly owned subsidiary of the Reserve Bank of India 32
(RBI).

The IDBI is vested with the responsibility of coordinating the working of institutions
engaged in financing, promoting or developing industries. It has evolved an appropriate
machinery for this purpose. The appraisal and supervision of projects assisted on a
consortium basis are coordinated to avoid duplication work and delays.

PRIVATE SECTOR BANKS:

ICICI Bank:

ICICI Bank was established by the Industrial Credit and Investment Corporation of
India (ICICI) , an Indian financial institution, as a wholly owned subsidiary in 1994. The
46
parent company was formed in 1955 as a joint-venture of the World Bank, India's public-
sector banks and public-sector insurance companies to provide project financing to Indian
industry. The bank was founded as the Industrial Credit and Investment Corporation of India
Bank, before it changed its name to the abbreviated ICICI Bank. The parent company was
later merged with the bank.

ICICI Bank launched internet banking operations in 1998. ICICI's shareholding in

ICICI Bank was reduced to 46 percent, through a public offering of shares in India in 1998,
followed by an equity offering in the form of American Depositary Receipts on the NYSE in
2000. ICICI Bank acquired the Bank of Madura Limited in an all-stock deal in 2001 and sold
additional stakes to institutional investors during 2001-02. In the 1990s, ICICI transformed its
business from a development financial institution offering only project finance to a
diversified financial services group, offering a wide variety of products and services, both
directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI
become the first Indian company and the first bank or financial institution from non-Japan
Asia to be listed on the NYSE. In 2000, ICICI Bank became the first Indian bank to list on
the New York Stock Exchange with its five million American depository shares issue
generating a demand book 13 times the offer size.

In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the
merger of ICICI and two of its wholly owned retail finance subsidiaries, ICICI Personal
Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger
was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court
of Gujarat at Ahmedabad in March 2002 and by the High Court of Judicature at Mumbai and
the Reserve Bank of India in April 2002.

In 2008, following the 2008 financial crisis, customers rushed to ICICI ATMs and
branches in some locations due to rumours of adverse financial position of ICICI Bank. The
Reserve Bank of India issued a clarification on the financial strength of ICICI Bank to dispel
the rumours.

HDFC Bank:

47
 HDFC Bank Limited (Housing Development Finance Corporation) is an Indian
banking and financial services company headquartered in Mumbai, Maharashtra. It has about
76,286 employees including 12,680 women and has a presence in Bahrain, Hong Kong and
Dubai. HDFC Bank is the second largest private bank in India as measured by assets. It is the
largest bank in India by market capitalization as of February 2016. It was ranked 58th among
India‘s most trusted brands according to Brand Trust Report, 2015.

Total balance sheet size as of December 31, 2015 was Rs. 687,892 crores as against
Rs. 534,855 crores as of December 31, 2014. The Bank‘s total income for the quarter ended
December 31, 2015 was Rs.18,283.3 crores, up from Rs.14,930.7 crores for the quarter ended
December 31, 2014. Net revenues (net interest income plus other income) increased by
20.7% to Rs. 9,940.7 crores for the quarter ended December 31, 2015 as against Rs. 8,234.8
crores for the corresponding quarter of the previous year.

In 1992, HDFC Bank Limited was incorporated, with its registered office in Mumbai,
India. Its first corporate office and a full service branch at Sandoz House, Worli was
inaugurated by the then Union Finance Minister, Dr. Manmohan Singh. It operates in 2,505
cities in India with 4,281 branches which are linked on an online real-time basis. The Bank
has a network of 11,843 ATMs across India.

AXIS Bank:

Axis Bank Limited is the third largest private sector bank in India. Axis Bank's stake
holders include prominent national and international entities. As of 31 Dec. 2013,
approximately 43% of the shares are owned by Foreign Institutional Investors. Promoters
(UTI, LIC and GIC), who collectively held approx. 34% of the shares, are all entities owned
and controlled by the Government of India. The remaining 23% shares are owned by
corporate bodies, financial institutions and individual investors among others. The bank
offers financial services to customer segments covering Large and Mid-Sized Corporates,
MSME, Agriculture and Retail Businesses. Axis Bank has its registered office at
Ahmedabad.

48
 Indian Business: As of 22 April 2016, the bank had a network of 3062 branches and
extension counters and 12922 ATMs. Axis Bank has the largest ATM network among private
banks in India and it operates an ATM at one of the world‘s highest sites at Thegu, Sikkim at
a height of 4,023 meters (13,200 ft) above sea level. International Business: The Bank has
eight international offices with branches at Singapore , Hong Kong, Dubai (at the DIFC),
Shanghai, Colombo and representative offices at Dubai and Abu Dhabi, which focus on
corporate lending, trade finance, syndication, investment banking and liability businesses. In
addition to the above, the Bank has a presence in UK with its wholly owned subsidiary Axis
Bank UK Limited. The total assets of the overseas branches were US$7.86bn.

UTI Bank opened its registered office in Ahmedabad and corporate office in Mumbai
in December 1993. The first branch was inaugurated on 2 April 1994 in Ahmedabad by
Dr.Manmohan Singh, then Finance Minister of India. UTI Bank began its operations in 1993,
after the Government of India allowed new private banks to be established. The Bank was
promoted in 1993 jointly by the Administrator of the Unit Trust of India (UTI-I), Life
Insurance Corporation of India (LIC), General Insurance Corporation, National Insurance
Company, The New India Assurance Company, The Oriental Insurance Corporation and
United India Insurance Company.

In 2001 UTI Bank agreed to merge with and amalgamate Global Trust Bank, but the
Reserve Bank of India (RBI) withheld approval and nothing came of this. In 2004 64 the RBI
put Global Trust into moratorium and supervised its merger into Oriental Bank of Commerce.
UTI Bank opened its first overseas branch in 2006 Singapore. That same year it opened a
representative office in Shanghai, China.

UTI Bank opened a branch in the Dubai International Financial Centre in 2007. That
same year it began branch operations in Hong Kong. The next year it opened a representative
office in Dubai.

Axis Bank opened a branch in Colombo in October 2011, as a Licensed Commercial

Bank supervised by the Central Bank of Sri Lanka. Also in 2011, Axis Bank opened a
representative offices in Abu Dhabi. In 2013, Axis Bank's subsidiary, Axis Bank UK
commenced banking operations. Axis Bank UK has a branch in London.

49
Table 1: showing total incomes of selected public and private sector banks:

Total Income Amount in cr.

Particular 2015-16 2016-17 2017-18 2018-19 Mean

State Bank of India 43291 44324 55015 56881 49878
Bank of Baroda 40953 46018 50364 51791 47282
IDBI 31453.46 31759 30035 25372 29655
Total 115697 122101 135414 134044 126815
HDFC Bank 70973 81602 95461 116598 91159
ICICI Bank 68062 73661 72386 77913 73006
Axis Bank 50360 52625 56747 68116 56962
Total 189395 207888 224594 262627 221127

300000

250000

200000
Sum of 2017-18

150000 Sum of 2016-17

Sum of 2015-16

100000 Sum of 2018-19

50000

0
Public Sector Bank Private Sector Bank

50
Table 2:- Showing Net Profit of selected Private and Public Sectors Banks

Total Net Profit Amount in crores

Particular 2015-16 2016-17 2017-18 2018-19 Mean

State Bank of India 9951 10484 6547 862 6961
Bank of Baroda 539 1383 (2432) 434 1197
IDBI 2032 1562 832 5763 2547
Total 12522 13429 4947 7059 10705
HDFC Bank 12296 14549 17487 21078 16353
ICICI Bank 9726 9801 6777 3363 7417
Axis Bank 8224 3679 276 4677 4214
Total 30246 28029 24540 29118 27984

35000
30246
28029 29118
30000
24540
25000

20000

15000 12522 13429

10000 7059
4947
5000

0
Public Sector Bank Private Sector Bank

Sum of 2015-16 Sum of 2016-17 Sum of 2017-18 Sum of 2018-19

Table 3 :- Showing Operating Profit of selected Private and Public Sectors Banks

Operating Profit Amount in crore

Particular 2015-16 2016-17 2017-18 2018-19 Mean

State Bank of India 43258 50848 59511 55436 52263

51
Bank of Baroda 8816 10975 12006 13487 11321
IDBI Bank 3665 (5158) 8238 15116 8044
Total 55739 56665 79755 84039 71628
HDFC Bank 21523 18426 14549 22974 19368
ICICI Bank 23863 26487 24741 74345 37359
Axis Bank 16104 17585 15594 19005 17072
Total 61490 62498 55884 116324 73799

140000

120000

100000
Sum of 2015-16
80000
Sum of 2016-17
60000 Sum of 2017-18
40000 Sum of 2018-19

20000

0
Public Sector Bank Private Sector Bank

52
Table 4 :- Showing Net Interest Income of selected Private and Public Sector Banks

Net Interest Income Amount in crore

Particular 2015-16 2016-17 2017-18 2018-19 Mean

State Bank of India 57195 61860 74854 88349 70565
Bank of Baroda 45799 39625 30521 18684 33657
IDBI Bank 28043 27791 23027 22071 25233
Total 131037 129276 129402 129104 129455
HDFC Bank 27592 33139 40094 48243 37267
ICICI Bank 21224 31737 23026 24326 25078
Axis Bank 16833 18093 18618 21078 18656
Total 65649 82969 81738 93647 81001

Chart Title
140000

120000

100000

Sum of 2015-16
80000
Sum of 2016-17
60000 Sum of 2017-18
Sum of 2018-19
40000

20000

0
Public Sector Bank Private Sector Bank

53
Table 5 :- Showing Return on Asstes of selected Private and Public Sectors Banks

Return on Asstes

Particular 2015-16 2016-17 2017-18 2018-19 Mean

State Bank of India 0.46 0.41 (0.19) 0.02 0.27
Bank of Baroda 0.8 0.20 (0.34) 0.06 0.35
IDBI Bank 0.69 0.78 2.46 4.68 1.38
Total 1.85 1.39 1.93 1.76 2
HDFC Bank 1.92 1.88 1.93 1.90 1.91
ICICI Bank 1.49 1.35 0.87 0.39 1.03
Axis Bank 1.72 0.65 0.04 0.63 0.76
Total 5.13 3.88 2.84 2.93 3.7

5.13
5

3.88
4

2.84 2.93
3

1.85 1.93
2 1.76
1.39

0
Public Sector Bank Private Sector Bank

Sum of 2015-16 Sum of 2016-17 Sum of 2017-18 Sum of 2018-19

Conclusion :-

54
Conclusion

55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83