Impact of Public Private Partnership in the financial development of Banking Sector in India

Submitted By: Aditi Bagra

PGDM Section C, 22P128

Executive Summary:

Importance of Banking sector in India and its’ current status:

Banking is an integral part of the whole financial system. It affects the country's economy by
providing investment, credit, and infrastructure. The banking industry is the backbone of global
economies. The banking sector plays a significant role in the economic growth and development of any
country.

The purpose of banking systems is to give security and confidence to the economy. A banking system
operates in line with managing the flow of money between people and businesses. The functions of a bank
are mentioned below: Accepting withdrawals and deposits.

Importance of Banking Sector in a Country

 Banking is an integral part of the whole financial sector. It affects the country’s economy by
providing investment, credit, and infrastructure.
 The banking sector plays a significant role in the economic growth and development of any
country.
 The global banking sector is estimated to be over USD 20 trillion. It includes trade, finance,
insurance, and investment activities of banks.
 With the advent of computers and micro processing machines, now most banks have been
automated. Financial transactions have been made easier and quicker. With the easy availability of
funds, entrepreneurs can get more funds for their businesses. 
 The Banking Sector has also helped poor farmers in developing countries by providing them with
credit facilities.
 The banking sector has also been criticized for not providing people with sufficient access to
funds, a lack of transparency, too big of a size, and its role in the global economy.

Public Private Partnerships(PPP)

PPP is defined as follows by the Department of Economic Affairs (DEA), India:

PPP refers to an agreement between a public or statutory entity or government-owned entity and a
private sector entity for the provision of public assets and/or related services for the benefit of the public,
through investments made by and/or management undertaken by the private sector entity for a specific
time period, where there is a substantial risk sharing arrangement and the private sector receives
performance-linked payments.

Public-private partnerships, sometimes known as PPPs, are long-term agreements between the public
and private sectors. It entails using private cash to finance public projects and providing services up front
before either receiving payments from the government or revenues from taxpayers over the length of the
PPP contract based on the performance of the contract.

Characteristics of PPP:

 PPP characteristics include the project's operations being carried out by the private sector.
 And as a result, the private sector is responsible for a large portion of the associated risks.
 The public sector keeps an eye on how the private sector is doing and makes sure that all of the
conditions are being followed.
  Through contributions from the public sector and later through the revenues obtained from tax
payers, the private sector's costs are recouped in full or in part.
 Payments made to public sector employees are fully determined by the contract's performance
objectives.
 The only product of a PPP is a service, not an asset. This is done to guarantee the asset's quality
and the effective use of public resources.

The public sector can profit significantly from PPPs in terms of potential cost and quality.
Additionally, there is always the benefit of sharing risks. The public sector is relieved from the necessity of
meeting the investment requirements through taxes or borrowings thanks to the involvement of the private
sector's finances.

Externality is the expense or benefit of production or consumption that affects parties other than the
ones who chose to bear the cost or benefit. Additionally, fossil fuels have worse externalities than
renewable energy sources. Because of the two's complementary nature, fossil fuels are being phased out
and renewable energy sources are being added as a result. Such large-scale integration necessitates capital-
intensive strategic structural changes. Additionally, we face financial limitations as a developing country.
Due to financial limitations, we are unable to fund large-scale projects; however, PPPs, which were once
widely utilised to create infrastructure (roads, railways), now serve as a solid and adaptable framework that
stimulates private sector involvement in the growth of the renewable energy industry.

This project report was created with the idea that PPPs would support the development and growth of
this emerging industry in our nation. The analysis of significant PPP projects completed in India and the
learnings from them have been presented.

Conclusion: The recent developments in the banking sector showed the precise functioning of various
segments of the banking sector. Since the introduction of banking, the banking structure in the country has
grown leaps and bounds, which is why it is so important for us to understand how it works and what
different segments are there. This understanding will go a long way in helping us open our bank account
and also help us expand our business through business banking. It is important to know the level of loan
that we can avail and other profitable schemes running in the country.