Changing Scenario of Public Sector Banks in India

Abstract

Changing Scenario of Public Sector Banks in India. Indian financial sector underwent a radical change during the nineties. From the relatively closed and regulated environment in which agents had to operate earlier the sector had opened up as part of the efficiency enhancing structural policies to bring about high sustainable long growth of the economy. The banking sector was also not an exception to this rule. New measures were to induce efficiency and competition into the system. Accounting and provisioning norms, capital adequacy norms, proper risk management measures, partial privatization of public sector banks etc. were brought in place and entry regulations were also relaxed. Despite the suggestions of the Narasimham committee to rationalize state owned Banks, the Government of India decided against liquidation, which would have involved significant losses accruing to either the Government or depositors. It opted instead to maintain and improve operations to allow banks to create a starting basis before a possible privatization.It is believed that private ownership helps to improve efficiency and performance. In 1993, partial private shareholding of the SBI was allowed, which made it the first State Owned Bank to raise equity in the capital markets. After the 1994, amendment of the Banking Regulation Act State Owned Banks was allowed to offer up to 49 percent of their equity tothe public. This led to the partial privatization of the many state owned Banks. Despite those partial privatizations Government is committed to keep the public character of these banks by maintaining strong administrative controls.