A PROJECT REPORT ON

PUBLIC SECTOR BANKS OF DOMBIVLI

A PROJECT REPORT SUBMITED TO

THE UNIVERSITY OF MUMBAI FOR PARTIAL
COMPLETION OF
THE DEGREE OF BACHELOR OF COMMERCE
(BANKING & INSURANCE)
UNDER THE FACULTY OF COMMERCE.

SUBMITTED BY

KEVIN C. SUNU

UNDER THE GUIDANCE OF

ASST. PROF. PRIYANKA GOSWAMI

KERALEEYA SAMAJAM

DOMBIVLI’S MODEL COLLEGE

KHAMBALPADA, THAKURLI (EAST)

UNIVERSITY OF MUMBAI
MARCH 2020
 TABLE OF CONTENTS

SERIAL DESCRIPTION PAGE

NO. NO.
1. CERTIFICATE

2. DECLARATION

3. ACKNOWLEDGEMENT

4. CHAPTER 1
INTRODUCTION
5.

6.

7.

8.

9.

10.

11.
 DECLARATION

I, THE UNDERSIGNED MR. KEVIN C. SUNNU HERE BY,

DECLARE THAT THE WORK EMBODIED IN THIS PROJECT
TITLED “A PROJECT REPORT ON PUBLIC SECTOR
BANKS OF DOMBIVLI”, FORMS MY OWN
CONTRIBUTION TO THE RESEARCH CARRIED OUT
UNDER THE GUIDANCE OF ASST. PROF. PRIYANKA
GOSWAMI IS A RESULT OF MY OWN RESEARCH WORK
AND HAS BEEN PREVIOUSLY SUBMITTED TO ANY
OTHER UNIVERSITY FOR ANY DEGREE/DIPLOMA TO
THIS OR ANY OTHER UNIVERSITY.

I, HERE BY FURTHER DECLARE THAT ALL THE

INFORMATION OF THIS DOCUMENT HAS BEEN
OBTAINED AND PRESENTED IN ACCORDANCE WITH
ACADEMIC RULES AND ETHICAL CONDUCT.
KEVIN C. SUNNU

BACHELOR OF COMMERCE

BANKING & INSURANCE

CERTIFIED BY
ASST. PROF. PRIYANKA GOSWAMI
 ACKNOWLEDGEMENT

I WOULD LIKE TO ACKNOWLEDGE THE FOLLOWING AS

BEING IDEALISTIC CHANNELS 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, DR. VINAY

BHOLE FOR PROVIDING THE NECESSARY FACILITIES
REQUIRED FOR COMPLETION OF THIS PROJECT.

I TAKE THIS OPPORTUNITY TO THANK OUR COORDINATOR

ASST. PROF. GEETA NAIR, FOR HER MORAL SUPPORT AND
GUIDANCE.

I WOULD ALSO LIKE TO EXPRESS MY SINCERE GRATITUDE

TOWARDS MY PROJECT ASST. PROF. PRIYANKA GOSWAMI
WHOSE GUIDANCE AND CARE MADE THE PROJECT
SUCCESSFUL.

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 THE
COMPLETION OF THE PROJECT.

KEVIN C. SUNNU
 CHAPTER I
INTRODUCTION
 A Public Sector bank is one in which, the Government of India
holds a majority stake. It is as good as the government running the bank.
Since the public decide on who runs the government, these banks that are
fully/partially owned by the government are called public sector banks.

Public Sector Banks (PSBs) are a major type of government

owned banks in India, where a majority stake (i.e. more than 50%) is held
by the Ministry of Finance of the Government of India or State Ministry of
Finance of various State Governments of India. The officers working for
these entities and their subsidiaries are gazetted officers. The employees
subordinate to the officers working for these respective entities and their
subsidiaries are also full-fledged government employees. The shares of
these banks are listed on stock exchanges. Their main objective is social
welfare.

Banks are the most important financial institutions in the world.

Thanks to the banking system, all financial transactions possible without
much hassle. People can save their money in banks, take loans, and
transfer funds easily through bank accounts. However, all banks are not
the same. According to their stakeholders, banks can be classified into two
types. These are Public sector banks and private sector banks. Even though
both types of banks offer similar services to the public, but there are some
major differences in-between them. Let’s take a closer look and see what
is public sector bank and how does it work.

In any economy, banks have always been an integral part of

society.  Banks are such financial institutions that provide many services
and products like deposit management, loans, wealth management,
exchange of currency, investment banking, and many more. Individual
consumers, companies, and a variety of other institutional entities are
among the customers of these banks.
 
Commercial banks have evolved and changed the way of their
work with different rules and interest rates. Today, major banks serve their
traditional customers, who include individual consumers as well as large
and small businesses, by providing savings and checking accounts,
certificates of deposit, loans, and other related services. 

Many of them also have investment banking operations, where

they deal with corporate and institutional customers to provide
underwriting of stock offerings, brokerage, and M&A advice.

THE ROLE OF PUBLIC SECTOR BANKS

PSBs have been the backbone of Indian financial architecture
since nationalization of State Bank of India in 1955, followed by more
banks in 1969 and 1980. Despite critical global conditions and turbulence
in the Indian economy, PSBs have been successful in meeting their
mandate with support from the Government and the RBI.

In recent years, though the credit offtake has been lower than
expected, capital adequacy is appropriate and deposit growth has been
following a steady pace. However, the NPAs of PSBs have increased
significantly in the recent past though the uptrend had been brewing for
some time .

The general refrain of PSBs is that they operate under constraints,

are not on equal footing with private financial institutions and have to
lend to certain risky segments of the economy as part of priority sector
lending, as well as directed lending, sometimes under political
compulsions.

PSBs account for a substantially large share of stressed assets in

mining, iron and steel, textiles, infrastructure and aviation as compared to
private sector banks (PVBs) because of substantially larger exposure to
these sub-sectors. Illustratively, PSBs account for 17.6 percent of advances
to infrastructure as compared with 8.4 percent of the PVBs, while stressed
assets were 30.9 percent compared with 18.2 percent, respectively.
Similar are the results when comparison is extended to other stressed
sectors. Thus, when granularly analyzed, relatively, performance of PSBs
is not inferior to that of PVBs. Table 5 report the incidence of NPAs and
stressed assets in PSBs and PVBs respectively. Though the incidence of
NPAs is higher in PSBs, it is important to understand the context behind
such high incidence before any measures can be suggested.
 Since the first nationalization of State Bank of India in 1955,
followed by more in 1969 and 1980, PSBs were created to pursue social
objectives and focus on banking the unbanked. Consequently, PSBs have
been in the forefront in rural areas and relentlessly pursuing
implementation of welfare schemes of the government in terms of priority
sector lending, and pension and insurance schemes, including those
recently announced. And, PSBs, admirably, despite pursuing social
objectives are competing well on various financial parameters with PVBs.
Therefore, there may be a need, in absence of level playing field, to
evaluate PSBs and PVBs on different scale. Illustratively, to be fair to the
PSBs, the owner and regulator should take cognizance of the fact that in
opening 16.5 crore Jan Dhan accounts within first six months of launching
the scheme, without seeking additional man-power, these PSBs would
have deployed all their resources at the cost of other activities.

In contrast, PVBs only opened 68 lakh Jan Dhan accounts.

Additionally, PSBs have been paying a steady stream of dividends year on
year. The government being the largest shareholder in PSBs, is the biggest
beneficiary of these dividends. This is over and above the corporate taxes
and other taxes that all corporate entities of these dividends. This is over
and above the corporate taxes and other taxes that all corporate entities
including PSBs have to pay.

IMPORTANTANCE OF PUBLIC SECTOR

BANKS

The importance of public sector banks is increasing day by

day even in the era of globalisation, noted economist and former
professor of Economics at Hyderabad University Dr. D.N. Reddy has
said.
Delivering the inaugural address of the 6 General Council of
State Bank Staff Union (Kerala Circle) here on Sunday, he said
Kozhikode had a prominent role in the history of struggle against
globalisation. It was Vasco da Gama’s arrival in Kappad that triggered
the use of the market for colonisation. Uninhibited privatisation was
the aim of globalisation, he said.
 He said the banking sector was getting increasingly
privatised and that it was this that led to the decline of the sector in
many parts of the world including the USA in 2008. The decline of
the sector would eventually lead to the decline of the nation, Dr.
Reddy said, adding it was nationalisation that saved the banking
sector in India in 1969.
National convenor of the union M.V. Murali, in his key
note address, said the unlimited borrowing of the corporates from
the banks in the country and refusal to pay back would lead to a
crisis not only in the banking sector, but in the economy of the
country.
The Indian Banks Association was refusing to implement timely
wage revisions citing this problem, he said, demanding the wage revision
should be implemented at the earliest. In fact, the bank employees were
heading to protest measures raising the demand, he added.

HOW DOES PUBLIC SECTOR BANKS WORK ?

Public sector banks are those banks where the government holds

more than 50% ownership. With these banks, the government regulates the
financial guidelines. Because of government ownership, most depositors
believe that their money is more secured in public sector banks. As a
result, most public sector banks have a large customer base.

For example, The State bank of India (SBI) is the largest public

sector bank in India. In this bank, the Indian government holds more than
63% share. A large part of the remaining share is also traded in the Indian
stock market.

Relative to other banks, the employees of public sector banks enjoy

more job security. They also enjoy other perks like pension after
retirement. For this reason, many of these employees are reluctant to give
their best service. As a result, the rate of loan defaulter is much higher in
public sector banks. The promotion in the public sector banks is based on
seniority, which de-motivate many employees.
 Most public sector banks offer less customized service to
customers. As a result, Customer complaint due to poor service is very
common in public sector banks. However, public sector banks offer more
interest rate to the customer. Customers can also get different loans with a
small interest rate.

FUNCTIONS OF PUBLIC SECTOR BANKS

 
Since the country's establishment, the public banking industry has
come a long way. With the advent of technology, core banking was
introduced in the country, and it has since expanded to every nook and
cranny. It has made a lot of things easier for both clients and bank
workers. 
 
The primary role of any public or private sector bank is to mobilize
the resources and capital amassed via various deposits and schemes for
varying periods of time and lend them to its own customers at higher rates
of interest in order to maximize profit from the money. 
 
The bank also offers its valued clients’ lockers, remittance,
draught production, check to collect and transfer, and bank guarantee
credit. It also provides insurance and mutual fund plans to its consumers,
in addition to lending programs and money savings.
 
Most public-sector banks provide less personalized care to their
customers. As a result, customer complaints about bad service are rather
prevalent in public sector banks. Customers, on the other hand, receive
higher interest rates from public sector banks. Customers can also obtain
various loans with low-interest rates.
 THE MAJOR AND IMPORTANT
OBJECTIVES OF PUBLIC SECTOR BANK ARE :

 
Acceleration of Economic Growth and Industrialization: In a
developing country, like India, some industries need to be brought within
public ownership and control in order to achieve rapid economic growth.

Promotion of Fair Distribution of Income and Wealth: Heavy industry

strategy called for a pattern of resource allocation necessitated expansion
of public sector.

Promotion of Balanced Regional Development: Public enterprises of the

Central Government are to be set-up in those regions which are
underdeveloped and where local resources are not adequate.

Promotion of the Growth of Strategic Defence oriented Industries: By

way of surpluses from public enterprises, funds for financing development
can be generated. These surpluses can be reinvested or can be used for the
establishment and expansion of other industries.

Assistance of the Development of small and Ancillary Industries: By

the public sector expansion, employment growth as well as the promotion
of small and ancillary industries can be achieved.

Creation of Employment Opportunities: The expansion of public sector

creates the employment opportunities.

Achievement of Socialist Pattern of Society: The socialistic pattern of

society calls for extension in two ways firstly production will have to be
centrally planned and secondly to bring about reduction in the in realities
and wealth.
To avoid the limitations and abuses of the private sector: When initial
capital requirements are large private sector fails to come forward in a big
way, in such eases public sector enterprise is the answer.

Generation of forces of economic and technological self-

reliance: Public enterprises should make themselves responsible for the
building of the economic overheads like transport, power, fuel and basic
capital goods.

Some of the important objectives are removal of poverty,

attainment of self-reliance, reduction in income inequalities, expansion bf
employment opportunities, removal of regional imbalances, acceleration of
economic development and reduction of concentration of economic power.

ADVANTAGES OF PUBLIC SECTOR BANKS :

Multiple advantages are associated with using public sector banks.

For this reason, these banks have millions of customers. Here are some
advantages customers get from public sector banks.

1. The first and foremost advantage of public sector banks is that

they are safe and people keeping money in fixed deposit and in
saving account do not have to worry about the safety of their
funds as chances of default by public sector banks is next to nil
as government tends to bail out these banks in case they are in
financial stress and hence as far as individual is concerned his or
her money will be safe even if bank has financial problem.

2. Another advantage of these banks is that there are less hidden

charges and also lower limit of amount to be held as minimum
deposit as far saving account is concerned, so for example in case
of private banks minimum balance to be maintained is anywhere
between 5000 to 20000 rupees whereas in case of public sector
banks it is 1000 rupees and in case of student account and no frill
accounts it is 0.

3. As far as employees are concerned these banks are more

beneficial because of job security and once an individual gets
into public sector bank he or she does not need to worry about
 retrenchment which is the case with private sector banks, though
at higher levels of management private banks pay higher
remuneration to its employees but at lower levels the exploitation
is more in case of private banks as compared to public sector
bank.

4. High-interest rate on deposits.

5. Low-interest charge on loans.

6. Employees get full job security.

7. These employees also get a pension after retirement.

8. Offer service to a large customer base.

9. Offer their service to the rural part of the nation.

10.Offer financial service through multiple branches

DISADVANTAGES OF PUBLIC SECTOR BANKS

Most public banks around the world are facing multiple challenges. These
challenges are also making them unpopular in public. Here are some
disadvantages associated with public sector banks.

1. The biggest disadvantage of public sector banks is that in terms

of technology they lag far behind as compared to private sector
banks so if you are one of those who do his or her majority of
work online than public sector bank is not his or her cup of tea.
Although public sector banks are trying their best by upgrading
their technology still private sector banks hold an edge over
them.

2. Another disadvantage of public sector banks is that if you go in

public sector banks excepting that you will get all information at
one seat which is the case with private sector banks then you will
be disappointed because in public sector banks one individual
 keep doing same work for years resulting in he or she losing
touch with other areas of banking.

3. Due to government share in public sector banks there is lot of

government intervention and due to it these banks have to
give loans not on the basis of merit of project but due to political
pressure resulting in that loan becoming NPA which will result in
loss for the bank. Another area of distress due to government
intervention is opening various no frills account due to
government seeking political mileage, also opening branches in
far-flung areas due to government financial inclusion program
affects the profitability of the banks.

4. The big bureaucratic system at the management level

5. Inability to a big financial decision quickly

6. Offer less customized service to the customers

7. Too many complaints against the employees for their poor service

8. Most public sector banks are suffering from big corruption scandals

9. High defaulter rate from the customer.

10.Public sector banks spend lots of money on financial operation

As one can see from the above that public sector has both
advantages as well as disadvantages and for an economy like India they
are very important because of large unbanked population and also due to
the state of the Indian economy which requires not only fast growth but an
inclusive growth where everybody benefits and not some sections of
society.

The banking structure of India is headed by the RBI and

comprises commercial and cooperative banks. Commercial banks include
Scheduled Commercial Banks (SCBs) and non-scheduled commercial
banks. SCBs, in turn, are divided into private, public, and foreign banks as
well as Regional Rural Banks (RRBs), whereas co-operative banks
comprise urban and rural lenders.

Public Sector Banks (PSBs) are an important type of government-

owned bank in India. A majority stake (> 50%) is held by the Ministry of
Finance of the Government of India or State Ministries of Finance of
different State Governments. In India, public sector banks play a dominant
role in extending loans and collecting deposits, although over the years
competition has substantially increased due to the emergence of the private
sector and foreign banks.

Public sector banks (PSBs) accounts for roughly 70% of total

deposits, while private sector banks held the majority of the remaining.

In India, 10 public sector banks (PSBs) were merged into four

on 1 April 2020. Six weaker banks were merged with four larger, anchor
banks. This merger has not only reduced the need for recapitalization from
the government but also enabled smaller banks to benefit from the service
delivery and technological prowess of larger banks. Union Bank of India
absorbed Andhra Bank and Corporation Bank, while Oriental Bank of
Commerce and United Bank merged with Punjab National Bank.
Allahabad Bank merged with Indian Bank and Syndicate Bank merged
with Canara Bank. Dena Bank and Vijaya Bank were merged with Bank of
Baroda in 2019. With this, the total number of PSBs in India came down
from 27 in 2017 to 12. These 12 banks now consist of six merged banks –
SBI, Bank of Baroda, Punjab National Bank, Canara Bank, Union Bank of
India and Indian Bank.

The acquirer PSB banks, therefore, benefitted from a larger capital

base and the regional presence of smaller banks with customers having
access to a wider array of products and services to choose from in addition
to traditional products like deposits and loans.
 FINANCIAL PERFORMANCE

1) Market share of Major Public Sector Banks (%)

Rank Bank 2016-17 2017-18 2018-19 2019-20 2020-21

Name
1 State 18.45 22.2 22.19 22.63 22.73
Bank of
India
2 Punjab 5.31 5.15 4.94 4.78 6.6
National
Bank
3 Bank of 5.03 4.87 4.82 6.65 6.2
Baroda
4 Canara 4.27 4.34 4.47 4.3 6.12
Bank
5 Union 3.38 3.34 3.1 3.11 5.62
Bank of
India

2. Operating and Net Profit Margins

 All PSBs managed to record an expansion in their profit margins

during the latest quarter of June 2021. Operating profits margins
expanded on the back of lower interest expenses vis-à-vis interest
income
 State Bank of India (SBI) recorded a rise in its operating margins
from 22.2 per cent in the year-ago quarter to 24.5 per cent, although
the rise was nominal when compared to its peers on account of
higher interest costs. 
 Punjab National Bank’s (PNB’s) interest income came down a tad,
but the corresponding fall in interest expenses was much higher
resulting in an expansion in both, operating and net profit margins.
The operating profit margin recorded a strong expansion from 21.7
 per cent during the June 2020 quarter to 27.1 per cent during the
June 2021 quarter.

3. Net Interest Margin (NIM)

SBI has the highest NIM of more than three per cent throughout
the year. For the latest quarter of June 2021, SBI’s NIM stood at 3.15 per
cent followed by Union Bank of India at 3.08 per cent.
 Bank of Baroda stood third with a NIM of 3.04 per cent.
 Both PNB and Canara Bank reported NIMs of less than three per
cent.

4. Gross Non- Performing Assets (GNPA)

 SBI had the lowest GNPA in June 2021 quarter of about 5.3%
 PNB had a double-digit GNPA ratio through all the quarters. Its
GNPA ratio stood at 14.3 per cent during the June 2021 quarter.

5. Deposit Growth
 Deposit growth accelerated from 7.9 per cent during the 2019-20
financial year to 11.4 per cent during the pandemic year of 2020-21.
Within bank deposits, demand deposits increased at a faster pace
than time deposits.

KEY PSB INSIGHTS

 GROWTH OPPORTUNITIES
 OPPORTUNITIES IN MOBILE BANKING- Mobile banking
transaction volume and value increased y/y in FY2021 by 83% and
59%. Banks have ramped up their efforts to expand their footprints
in this platform since the trend is likely to continue even after the
pandemic.
 ADOPTING THE FINTECH TREND - In 2025, the fintech
market in India is expected to grow to $ 84bn from its current value
of $31bn. In terms of transaction value size, the fintech market is
expected to grow to $ 138bn in 2023.

 KEY GOVT INITIATIVES- National Asset Reconstruction

Company Limited (NARCL) which was recently announced by
Nirmala Sitaraman will acquire stressed assets worth about Rs 2 lakh
crore from various commercial banks in different phases. This will
help banks to enhance and increase credit lending’s.

GROWTH DRIVERS

 As per reports, only 2 out of 21 PSB were profitable in 2018, but in

2021, only 2 banks showed losses. Certain key reasons which have
been specified is the recapitalization of PSBs and merger of small
PSBs to larger ones. Mergers of public sector banks aided in
reducing operation costs for the banks. The government’s decision to
consolidate public sector banks, which came into effect on April 1,
2020, created fewer but larger banks with more financial strength,
 better international competitiveness and an ability to support larger
lending volumes.

 The banking sector continues to receive government support through

various initiatives to promote financial inclusion in the country. For
instance, the Pradhan Mantri Jan Dhan Yojana, launched in 2014 as
one of the flagship programmes under the financial inclusion
agenda, has seen continuous progress across various metrics such as
the number of account openings, the number of operating accounts
out of total accounts opened, total and average deposits, and
issuance of Rupay debit cards.

 Increased Demand for infrastructural investment- The power

industry followed by the road sector are the main users of bank
credit. India’s power generation sources range from conventional
sources such as coal, lignite, natural gas, oil, and nuclear to viable
unconventional sources such as wind, solar, agricultural and
household waste and hydropower.

 Retail loans to continue their growth trajectory

o Vehicle loans - India was 5th largest auto market in 2020.
Domestic automobile production has increased from at a
CAGR of 2.36% between FY16-20 around 26.36 million
vehicles manufactured in the country. The Indian automotive
industry is estimated to reach $ 300 billion by 2026. Higher
consumption of automobiles will lead to need for bank
financing which is expected to help support credit growth.

o Consumer Electronics- The appliances and consumer

electronics industry is expected to double to reach Rs. 1.48
lakh crore by 2025. Union Cabinet approved the Production-
Linked Incentive (PLI) scheme in 10 key sectors (including
electronics and white goods) to boost India’s manufacturing
capabilities, exports and promote the ‘Atmanirbhar Bharat’
initiative. Demand growth is likely to accelerate with rising
disposable income and easy access to credit.

 
 TYPES OF PUBLIC SECTOR BANKS

Nationalized Banks (Government Shareholding %, as of 30 June 2021)

State Bank of India (55%)
Bank of Baroda (64%)
Canara Bank (69.33%)
Punjab National Bank (73.1%)
Indian Bank (78.86%)
Union Bank of India (83.5%)
Bank of India (81.41%)
Central Bank of India (93.08%)
Bank of Maharashtra (93.33%)
UCO Bank (95.39%)
Indian Overseas Bank (96.4%)
Punjab and Sind Bank (98.07%)
Jammu and Kashmir Bank (66.51%)