ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Induce Spirit of Privatisation in Public Sector Banks

This article analyses why the progressive reforms in the public sector banks and the banking sector under the watchful eyes of the government could not bring the desired change in the working culture and governance of the PSBs. It highlights the reasons why PSBs lag behind and identifies future strategies that may help bring them back on the desired track.


Public sector banks (PSBs) have progressively improved their competitiveness after the roll-out of bank reforms beginning 1991. They demonstrated resilience and adaptability to change but could not attain a sustain­able growth trajectory. The imprint of legacy issues and challenges of transformation continued to impinge upon their operational efficiency. Their fragility com­pared to private banks broadly stems from (i) low capital base, (ii) high non-performing assets (NPAs), (iii) poor-qua­lity of standard assets vulnerable to further slippage, (iv) large volume of low value business due to mass banking, (v) low profitability with some PSBs carr­ying protracted negative return on ­assets (ROA), and (vi) low market capitalisation and tepid investor sentiments.

It is a good case to analyse why the progressive reforms, enhanced competition with entry of new banks, continuous capital support, upgraded regulations and watchful lens of government could not bring the desired change in the working culture and governance in PSBs. They now remain better but could not gain the strength and operational ­efficiency sufficient to attract capital from markets and stand on their own as independent commercial entities.

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Updated On : 2nd May, 2021
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