PROJECT ON THE STUDY

OF PUBLIC SECTOR
BANKS’ FUTURE IN THE
COUNTRY
SUBMITTED TO THE
UTKAL UNIVERSITY IN PARTIAL FULFILMENT OF
THE REQUIREMENT FOR THE DEGREE OF
BACHELOR IN COMMERCE
SUBMITTED BY
NAME: MD SHANAWAZ ARIF
COLLEGE ROLL No: BC20-217
UNIVERSITY ROLL No: 2003010120300105
UNDER THE GUIDANCE OF:
KRUSHNA CHANDRA DAS
H.O.D. (LECT. In Commerce)

DEPARTMENT OF COMMERCE
N.S.M. CITY COLLEGE, CUTTACK
 CERTIFICATE
KRUSHNA CHANDRA DAS
H.O.D., Lecturer in
N.S.M. CITY COLLEGE, Cuttack

This is to certify that the project entitled “PROJECT ON

THE STUDY OF PUBLIC SECTOR BANKS’ FUTURE IN
THE COUNTRY” submitted by MD SHANAWAZ ARIF,
bearing Roll .no-2003010120300105 a part of the
department of commerce, N.S.M. City College, Cuttack
for fulfilment of Bachelor in Commerce Degree is a
genuine and original work of him under my guidance.
His field work is satisfactory.

I wish him all the best.

Date: …………………
( signature of guidance)
 DECLARATION
I hereby declare that this project entitled “PROJECT ON
THE STUDY OF PUBLIC SECTOR BANKS’ FUTURE IN
THE COUNTRY” carried out by me is my own creation.
This project was carried out under the supervision of
Krushna Chandra Das , Lecturer in Commerce, N.S.M
City College, Cuttack in partial fulfilment for the award of
Bachelor’s in Commerce is a record of my own research
work . The record embodies the findings based on my
study and observation has not been submitted earlier for
any degree to any institute or university.
 ABSTRACT
The main objectives of this project are:

1. To study about the public sector banks in the

country.
2. To study the problems related to it.
3. To study the analysis and interpretation of it.
4. To give a definitive conclusion.
 CONTENTS
S.No Particulars Page.
No
1. Introduction 6-8
2. Problem Identification 9 - 11
3. Review of Literature 12 - 14
4. Research Methodology 15 - 22
5. Analysis & 23 - 25
Interpretation
6. Conclusion 26 - 27
INTRODUCTION
The recent restructuring of Public Sector Banks
(PSBs) has generated immense interest in the
economic world and the various stakeholders
which include investors, depositors, borrowers, the
staff working in these banks and the top
management of the merging entities. Whereas the
depositors look for safety of their monies, the
borrowers of merging entities look for new loan
products at cheaper rates and faster delivery. The
investors will look for resumption of dividend
payouts at higher rates and capital appreciation of
their investments and the staff looks for better
working conditions. The top management will
expect more freedom to operate and manage their
respective banks more efficiently to grow and earn
higher profits. The merger of strong banks was
recommended by the first Narasimham Committee
in 1991. It has taken almost 28 long years for the
Government of India to act on this very critical
suggestion of the committee. It is widely believed
that this belated step has been initiated due to
huge pile of Non Performing Assets (NPAs) with
Public Sector Banks and the resultant need for
their frequent recapitalization. It is a moral hazard
and bad economics for any government to
regularly recapitalise PSBs being the major stake
holder and having total administrative control of
their boards and the top management. To enable
PSBs meet the regulatory capital as per
international norms and the provisioning
requirements enforced by Reserve Bank of India,
use of tax payer’s money (collected for economic
development of the country) is questionable.
However it is made clear by the government that
the merger is intended to make PSBs bigger and
internationally competitive and to build up their
capacity to access capital markets for raising
resources. A perspective of growth of NPAs and
the resultant impact on the financial deterioration
of PSBs over a time horizon can give answers to
the need for restructuring of Public Sector Banks
as repeat of such actions by the government may
again be necessitated in future. The improvement
in financial performance parameters of PSBs over
next few years will answer if act of restructuring by
the Government of India results in internationally
strong ‘too big to fail banks’.

The future of public sector banks (PSBs) in India

depends on various factors such as the
government's policies, technological
advancements, competition, and economic
growth.
Currently, PSBs hold a significant market share in
the Indian banking sector, but they face several
challenges, including high levels of non-performing
assets (NPAs) and inefficiencies in their
operations. To address these challenges, the
government has taken several steps such as
capital infusion, consolidation of banks, and
implementing various reforms.
The adoption of technology and digitalization has
also played a crucial role in the transformation of
PSBs. With the increasing use of digital platforms,
PSBs can improve their efficiency, reduce costs,
and provide better customer service.
Private banks have been able to attract customers
with their innovative products, personalized
services, and better technology.
With continued government support and the
adoption of new technologies, PSBs can continue
to play a significant role in promoting financial
inclusion and driving economic growth in the
country.

PROBLEM &
IDENTIFICATION

Non-performing assets ratio

A problem faced by merging of banks occurs when
the Non-Performing Assets ratio is higher in any or
all of the merging banks. For instance, the Non-
Performing Assets ratio of Bank A is 2% and that
of Bank B is 4%. Now, suppose Bank B is merging
with Bank A. This of course will enlarge the Non-
performing asset ratio of Bank B, and adversely
affect its financial health, leading to a problematic
situation.

Unemployment of bank employees

Mergers may also cause unemployment of bank
employees. Employees may lose their job after the
merger due to excess staff or as a part of reducing
operating costs.

Managerial efficiency
Forcing a public sector bank to accommodate a
weak bank, thereby, absorbing the liabilities, may
reduce the managerial efficiency of the strong
bank and it can also lead to a reduction in the
incentive of the strong bank to perform well. This
in turn will affect the overall financial performance
of banks.
A merger is not a solution to bring down the
number of bad loans. It can worsen the situation
sometimes if not properly managed.

Political pressure
Non-performing assets are the major problem of
any bank. Treating the cause of it is important
rather than giving the burden to a stronger
counterpart. Our country has witnessed political
interference in what not. So is the case with banks.
Many public sector banks are compelled to issue
loans under political pressure even by
compromising on the various criteria for issuing a
loan. This eventually results in a growing number
of Non-performing assets. Here, merging can only
worsen the situation since merged banks with
more lending power now have to issue more loans
under political pressure.

The issue faced by customers

Another issue faced is by customers of public
sector banks which got merged. The change
in Indian Financial System Code (IFSC) blocks
many of their funds. Also, old MICR cheques need
to be replaced. They have to communicate the
same to each of their lenders and that would be
time-consuming and problematic. It is also likely
that the account number and customer id may
also change. Some customers may also face
problems in merging their accounts if they have
accounts in both transferee and transferor banks
in the merger. Now, if they wish to close their
accounts, banks may charge closing charges.
Sometimes banks have to upgrade their system or
technology to accommodate changes after the
merger. This is altogether another headache for
customers as they may face glitches in online
banking and ATM services. Another probable event
that may cause hardship to customers is the shut-
down of some branches of the amalgamating
bank. Customers who rely on such branches and
are their home branches find it inappropriate.

Unemployment
The unemployment situation which already is a
curse to India will worsen as fresh recruitments
may come to a halt at least for some years.

REVIEW OF LITERATURE
Public sector banks (PSBs) in India have faced
numerous issues in recent years. These issues
have been widely studied and documented in the
literature. Here are some of the most significant
issues faced by PSBs in India, along with a review
of the literature:
1. Non-performing assets (NPAs):
NPAs are one of the most significant issues faced
by PSBs in India. According to a study by the
Reserve Bank of India (RBI), the gross NPA ratio of
PSBs increased from 9.2% in September 2016 to
12.7% in March 2018 (RBI, 2018). The high level of
NPAs has affected the profitability and financial
stability of PSBs. Several studies have examined
the causes of NPAs in PSBs, including lax credit
appraisal and monitoring, political interference,
and economic slowdown (Kaur & Kaur, 2016; Singh
& Bansal, 2018).

2. Inefficiencies in operations:
PSBs have also faced inefficiencies in their
operations, leading to higher costs and lower
profitability. A study by Chand & Sahay (2019)
found that the operating expenses of PSBs were
higher than those of private sector banks due to
factors such as large branch networks, manual
processes, and outdated technology.

3. Capital inadequacy:
Many PSBs in India have struggled with capital
inadequacy, which has limited their ability to lend
and grow their business. A study by Dash &
Pradhan (2018) found that most PSBs had low
levels of capital adequacy compared to private
sector banks.

4. Competition from private sector

banks:
Private sector banks in India have grown rapidly in
recent years, posing a significant challenge to
PSBs. Private banks have been able to attract
customers with their better technology, innovative
products, and personalized services. Several
studies have examined the competitive dynamics
between PSBs and private sector banks in India
(Nayak & Pradhan, 2016; Singh & Verma, 2018).
In conclusion, the literature suggests that PSBs in
India face several significant challenges, including
high levels of NPAs, inefficiencies in operations,
capital inadequacy, and intense competition from
private sector banks. Addressing these challenges
will require a multi-pronged approach, including
reforms in governance, technology adoption, and
regulatory frameworks.
 RESEARCH METHODOLOGY
Objectives of the Study
1. To identify the banking sector that is largely
availed by the customers.
2. To examine the expectations and the level of
satisfaction of the customers towards the services
rendered by public and private sector banks.
3. To study the preferences and priorities towards
types of services provide by the public and private
sector banks.

Research Hypothesis
Ha0: All the selected attributes effect customer
satisfaction equally.
Ha1: All the selected attributes effect customer
satisfaction differently.
Hb0: There is no difference in satisfaction level of
customers in public and private banks.
Hb1: There is significant difference in the
satisfaction level of customers in public and
private sector banks.
Hc0: The selected attributes of customer
satisfaction are uncorrelated.
Hc1: Few of the selected attributes of customer
satisfaction are correlated.

Methodology and Research Design

The methodology and design adopted for the
study is as follows:
5.1 Area of Study The study has been conducted in
Chandigarh city having a population of more than
nine lacs. Chandigarh is known as one of the best
experiments in urban planning and modern
architecture in the twentieth century in India.
5.2 Period of the Study The present research study
is related to “Customer Satisfaction: A
Comparative study of Public and Private Sector
Banks in India”. The survey lasted for about six
months.
5.3 Data Collection This study is based on
questionnaire methods. Primary data were
collected from men and women respondents living
in Chandigarh city. People from all walks of life
were contacted. The total number of respondents
was 160.The researchers have covered customers
from six banks, three each from public sector and
private sector. Under Public sector banks State
Bank of India, Punjab National Bank and Oriental
Bank of Commerce were selected and ICICI, HDFC
and Axis Bank were selected among Private Sector
Banks.
5.4 Sampling A sample of 160 customers has
been selected using convenient sampling method.
The data has been interpreted satisfactorily
whenever and wherever needed.

Analysis and Findings

6.1 Reliability Analysis In this study reliability was
examined on all items. As a test of reliability
Cronbach’s Alpha was adopted to represent
internal consistency. Table 1, shows the reliability
test with all values greater than threshold of 0.60
(Walsh, 1995). Hence it can be conclude that the
items reliably measure the defined constructs.
6.2 Comparison between Public and Private Sector
Banks Showing the Effect of Banking Services on
Customer Satisfaction As the descriptive statistics
in table 2 shows a significant difference between
public and private banks in all the variables, it was
decided to examine whether the differences are
significant or not. For this purpose independent
sample t-test was performed. This test is used
when there are two experimental conditions and
different subjects were assigned to each
condition. Table 2 shows there is significant
relationship between all the variables and the
ownership of bank. Table 2 shows that private
sector banks are providing better services to
customer in terms of services provided by teller as
well relationship with managers. It also shows that
private sector banks are providing better
infrastructure facilities as compared to public
sector banks. Table 2 shows that customers are
more satisfied with private sector banks as
compared to public sector banks when it comes to
mutual fund services and telephone enquiries.
Hence it can be inferred that customer satisfaction
is higher in private banks than in public banks.
Table 2 also infers that customer satisfaction is
largely dependent upon their relationship with
senior staff and managers of the bank.
6.3 Correlation among Attributes Selected for
Measuring Customer Satisfaction Table 3 shows
correlation of attributes viz. services offered by
teller, relationship with manager, branch facilities,
statement facility, loan services mutual fund
services and enquiry on telephone for measuring
customer satisfaction. Table 3 shows that all the
attributes are correlated.
6.4 Regression Table 4 shows multiple
correlations between branch facilities and services
by teller (0.699), relation with manager (0.799),
mutual fund services (0.581) and telephone
enquiry (0.541). This table shows that branch
facility is positively correlated with teller services,
relationship with manager, mutual fund services,
and telephone enquiry thus contributing to
customer satisfaction.

Discussion and Conclusion

The duration of time that a customer spends with
his relationship officer or manager is very
important. As per the current data 68% of the
customers have been with their respective
relationship officer/manager for more than 2
years. This research further strengthens the
findings of Tyler and Stanley, 2001 which says that
customers give more importance to their personal
relationship with relationship officer/manager
rather than the bank they represented. Thus
relationship marketing should be emphasized
upon and special training should be provided to all
the corporate staff members in the bank, making
them aware about the actual meaning and use of
this concept. Table 2 shows the t-test conducted
for the sample. As per table all the values except
statement facility and loan services are significant.
According to Hypothesis Hb0 all the selected
attributes effect customer satisfaction equally
while the findings of current research shows that
the relationship of customers with
manager/customer relationship officer (mean =
27.57) effects customer satisfaction the most.
Thus hypothesis Ha0 does not hold good for this
factors and alternative hypothesis Ha1 is
accepted.
Further, this research shows that private banks
managers are ahead of public banks in making
relationship with their customer thus winning their
satisfaction. This can be attributed to the fact that
today larger client base in India is banking with
Private sector banks as compared to Public sector
banks. Most of the respondents were of the view
that public sector banks are lagging behind in use
of modern technology and techno savvy staff.
According to Hypothesis Ha0 there is no
difference in satisfaction level of customers in
public and private banks but the findings of current
research shows that private sector banks are
providing better services in terms of mutual funds,
query resolution through telephone, branch
facilities, services by teller and above all customer
relations with manager (all the significant t-values
taken). Thus hypothesis Hb0 is rejected and
alternative hypothesis Hb1 is accepted.
This research shows that if the facilities in the
branch viz. infrastructure, ambience, décor, sitting
facility, signage, etc. are adequate, it not only leads
to customer satisfaction but overall improvement
in working of the branch as well whether it is
services by teller, managers, loan services or
mutual fund services. If all the signage are in place
it will direct the customer to right desk without
wasting their time which further helps the service
officer in attending the customers in time and
cater to their needs. Table 3 shows correlation of
attributes viz. services offered by teller,
relationship with manager, branch facilities,
statement facility, loan services mutual fund
services and enquiry on telephone for measuring
customer satisfaction. According to hypothesis
Hc0 all the selected attributes of customer
satisfaction are uncorrelated while our findings
show that all the attributes except loan services
are correlated. Thus hypothesis Hc0 is rejected
and alternative hypothesis Hc1 is accepted.

Limitations of the Research Study

There is no research study without limitations.
There are a few limitations in the present study i.e.
“Customer Satisfaction: A Comparative study of
Public and Private Sector Banks in India”. These
limitations are discussed as follows: 1. The
researcher believes that the result of this study
may be limited in terms of generalization because
it refers only to a single city and this extinguishes
the opportunity of making comparison and
generalizing to the other parts of country. 2. The
sample of the study consisted of only 160
respondents due to time constraints. 3. The
questionnaires were mostly filled by the customers
in the presence of bank officials, so it is quite
possible that the respondents may avoid giving
negative responses fearing retaliation.
ANALYSIS AND INTERPRETATION
Public sector banks in India play a crucial role in
the country's banking sector and economy. These
banks are owned and operated by the Indian
government, and their primary goal is to provide
financial services to the public, promote economic
growth, and support government policies.
An analysis of public sector banks in India reveals
that they dominate the banking sector in the
country, accounting for around 70% of total
banking assets. However, they face a range of
challenges that can affect their financial
performance, such as high levels of non-
performing assets (NPAs), weak corporate
governance, and low profitability.
One of the major issues that public sector banks in
India face is the high level of NPAs. NPAs are
loans that are not being repaid by the borrower
and have become bad debts. Public sector banks
in India have historically struggled with high levels
of NPAs due to several factors, such as poor credit
appraisal, weak loan recovery mechanisms, and
political interference in lending decisions. This has
led to a significant impact on the banks'
profitability and capital adequacy ratios.
Another challenge for public sector banks in India
is weak corporate governance. Public sector banks
have traditionally been subject to government
control, which can lead to political interference and
influence in lending decisions. This can undermine
the banks' credit appraisal process and lead to the
sanctioning of loans to unviable projects or
borrowers. Weak corporate governance can also
lead to instances of fraud, as seen in recent years
in cases such as the Punjab National Bank fraud.
Finally, public sector banks in India also face
issues related to low profitability. The banks'
profitability has been impacted by factors such as
high NPAs, low-interest margins, and higher
operating costs due to outdated technology and
branch networks. This has resulted in a lower
return on assets (ROA) and return on equity (ROE)
compared to private sector banks.
In conclusion, public sector banks in India play a
crucial role in the country's banking sector and
economy. However, they face several challenges
related to high NPAs, weak corporate governance,
and low profitability. Addressing these issues will
require significant reforms, such as improving the
credit appraisal process, reducing political
interference, and enhancing the banks' technology
and branch networks.
 CONCLUSION
In conclusion, public sector banks in India are
critical institutions that provide vital financial
services to the public and play a crucial role in the
country's economy. However, they face several
challenges that can impact their financial
performance, such as high levels of non-
performing assets, weak corporate governance,
and low profitability.
To address these challenges, significant reforms
are needed to improve the credit appraisal
process, reduce political interference, and enhance
technology and branch networks. The government
has taken several steps in recent years to address
these issues, such as introducing the Insolvency
and Bankruptcy Code and implementing measures
to strengthen corporate governance.
Going forward, it is essential for public sector
banks in India to continue to focus on improving
their financial performance, enhancing their
competitiveness, and strengthening their
governance structures to better serve the needs of
the public and the economy. The success of these
efforts will depend on the collaboration and
cooperation of all stakeholders, including the
government, regulators, management, and
employees of public sector banks.