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Home / IAS Preparation / public sector banks

Public Sector Banks (PSBs): List of Public Sector Banks in India | UPSC Notes

Last Updated on Aug 28, 2024
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Public sector banks (PSBs) play a crucial role in the financial landscape of India. The government is the largest stakeholder in public sector banks. It lays the base for various economic policies and specific activities that are targeted towards the inclusion of finances. Public sector banks have a broad customer base, ranging from larger business organizations to small-scale farmers. They, therefore, are very important in running the motor of socio-economic development through multiple credit schemes and programs.

This topic comes under the syllabus of General Studies Paper III of the UPSC syllabus, under the section of Economic Development. It comprises the role of banking institutions in the Indian economy and the problems being faced by these institutions. It is also related to the policies of reform and restructuring concerning these institutions.

GS Paper

General Studies Paper III

Topics for UPSC Prelims

Financial Inclusion, Non-Performing Assets (NPAs), Bank Nationalization, Privatization of Public Sector Banks, Government Schemes involving Public Sector Banks

Topics for UPSC Mains

Impact of Public Sector Banks on Economic Development, Challenges and Reforms in Public Sector Banks, Comparison with Private Sector Banks, Role of PSBs in Financial Inclusion, Effectiveness of Government Policies in Banking Sector

Public Sector Banks Meaning

Public sector banks are banks in which the government, whether directly or through other government agencies or corporate bodies, holds a major percentage of ownership. Such banks aim to serve the interest of the public, and inclusion in the financial sphere is guaranteed for all sections of the society. They are, therefore, different from banks of the private sector, which essentially remain as privately owned and run organizations, catering more to profit motives. They also play a very very important role in implementing government policies on varied economic aspects like agricultural loans, educational loans, and poverty alleviation programs among many others.

History of Public Sector Banks in India

Public sector banks in India have a history dating back to the early 20th century when the need for extending banking facilities for social inclusion, economic, and agricultural support became important. The high moment in PSBs' evolution history occurred when 14 major commercial banks were nationalized by then Prime Minister Indira Gandhi in 1969. This move was purposed at increasing the reach of banking services in the rural and semi-urban areas and cater to the credit requirements of various population segments.

Phase 2 of nationalization occurred in 1980, in which six more banks were nationalized. The number of bank branches rose dramatically across the countryside, and this era witnessed enhanced banking services in the neglected sectors of the country. In the 1990s after liberalization, banking in India underwent a sea of change, but public sector banks still remained the nucleus of the financial firmament of India.

Read the article on Public Sector India!

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List of Public Sector Banks in India

As of the latest data, the following are the public sector banks in India:

List of Public Sector Banks in India

Sl. No

Bank Name

Headquarters

1

State Bank of India (SBI)

Mumbai, Maharashtra

2

Punjab National Bank (PNB)

New Delhi, Delhi

3

Indian Bank

Chennai, Tamil Nadu

4

Bank of Baroda

Vadodara, Gujarat

5

Canara Bank

Bengaluru, Karnataka

6

Union Bank of India

Mumbai, Maharashtra

7

Bank of India

Mumbai, Maharashtra

8

Central Bank of India

Mumbai, Maharashtra

9

Indian Overseas Bank (IOB)

Chennai, Tamil Nadu

10

UCO Bank

Kolkata, West Bengal

11

Bank of Maharashtra

Pune, Maharashtra

12

Punjab and Sind Bank

New Delhi, Delhi

Read the article on Banking in India!

Advantages of Public Sector Banks

Public sector banks possess various advantages that make them one of the most important links in the economic chain of India:

  • Financial Inclusion: PSBs maintain a vast branch network, which includes even the most remote parts of the country. That helps in provision for financial inclusion.
  • Government Policies Implementation: They help in implementing crucial government schemes like Pradhan Mantri Jan Dhan Yojana, Direct Benefit Transfer procedures, plus different types of loan waivers and subsidies.
  • Trust and Reliability: Being government-owned, these banks are considered to be more reliable and secure by the public at large, which has helped maintain a stable customer base.
  • Social Welfare: PSBs undertake a variety of social welfare programs and extend credit to the marginalized sections of society, like farmers, small entrepreneurs, and students, at a subsidized rate.
  • Stability in Crisis: Normally, during the time of a financial crisis or economic slowdown, public sector banks inject the much-needed stability and stand to support the economy.

Read the article on the Bank Board Bureau!

Challenges Faced by Public Sector Banks

Despite their significance, public sector banks face several challenges:

  • Non-Performing Assets (NPAs): The single largest emanating challenge is that of bad loans or NPAs that have been eroding profitability and impairing operational efficiency.
  • Operational Inefficiencies: Most PBs make use of a rather outdated technology and overindulge in bureaucratic processes. These inefficiencies become more prominent.
  • Capital Adequacy: Maintaining adequate capital to comply with regulatory requirements forms a part of the key area of continuous challenge but more importantly under conditions of high NPAs.
  • Private Banks' Competition: In customer service, technology infusion, and innovative financial products, private banks generally outperform public sector banks.
  • Human Resource Management: The problems related to recruiting, training, and retaining skilled staff affect the overall productivity of the organization in the public sector banks.

Read the article on the Asian Development Bank!

Privatization of Public Sector Banks

The issue, which is presently seriously debated, is the privatization of public sector banks. Privatization means the transfer of ownership from publicly governed to private hands with an aim at improved efficiency, competitiveness, and profitability.

Need for Privatizing Public Sector Banks

  • Improve Efficiency: PSBs, if privatized, can result in better operational efficiencies for a simple reason: by and large, private entities follow modern management practices.
  • Capital Infusion: Private ownership brings with it much-needed capital, which can support these banks in meeting regulatory capital norms and expand their operations.
  • Reduction in Burden on Government Finances: Privatization can result in a financial reduction of the government in terms of recapitalization needs.
  • Enhanced Customer Services: Having major stake ownership through a private entity would induce tender loving care for handling customer needs through improved services and trimming of financial products.
  • Mitigate Political Interference: Privatization can help in reducing political interference, hence leading to suboptimal lending practices and efficiencies.

Read the article on the Insolvency and Bankruptcy Code (IBC)!

Difference Between Public and Private Sector Banks

The difference between public and private sector banks is encoded in the following table:

Difference Between Public and Private Sector Banks

Aspect

Public Sector Banks

Private Sector Banks

Ownership

Majority owned by the government

Owned by private entities/corporations

Objective

Social welfare and financial inclusion

Profit maximization and shareholder value

Customer Base

Broader, including rural and semi-urban areas

Predominantly urban and semi-urban customers

Efficiency

Often hampered by bureaucratic processes

Higher due to professional management and modern practices

Technology Adoption

Slower due to legacy systems

Faster and more advanced technology adoption

Risk Tolerance

Generally conservative

More willing to take calculated risks

Service Quality

Perceived as less customer-friendly

Known for superior customer service

Financial Performance

Often lower profitability due to NPAs

Typically higher profits and better asset quality

Read the article on the Mission Indradhanush for banks!

Key Takeaways for UPSC Aspirants

  • Definition: Those banks in which the government stake is greater than 50% of the total stake.
  • Objectives: To ensure that the services of banks reach every nook and corner of the country, particularly the weaker and rural sections. This helps in the diffusion of financial inclusion and economic development.
  • Major Banks: SBI or State Bank of India, Bank of Baroda, Punjab National Bank among others
  • Governance and Regulation: Governed by Ministry of Finance; regulated by Reserve Bank of India (RBI).
  • Social banking: Focus on priority sector lending to agriculture, small-scale industries, education loans, and housing loans.
  • Financial Performance: Issues regarding NPAs and capital adequacy with government initiatives for its recapitalization.
  • Technological Adoption: Core banking solutions, Internet banking, and mobile banking; all because of better service cleanliness.
  • Reform: Work under the Indradhanush Plan consolidation and initiatives to build up governance and operational efficiency while working under the PCA framework.

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Public Sector Banks UPSC FAQs

As of the latest data, there are 12 public sector banks in India.

The oldest public sector bank in India is the State Bank of India (SBI). Its origin can be traced back to the establishment of the Bank of Calcutta in 1806, which later changed its name to the Imperial Bank of India and was changed to the State Bank of India in 1955.

The chairman of public sector banks in India is appointed by the Government of India, normally through a strenuous process supervised by the Banks Board Bureau under the Department of Financial Services.

Some of the largest public sector banks in the country are listed as below: State Bank of India (SBI) Punjab National Bank (PNB) Bank of Baroda (BoB) Canara Bank Union Bank of India

The term "best" public sector bank is indeed subjective to quantify, so it literally depends on the criteria followed, such as customer service provided, technology adoption, financial performance, and reach. Having said this, SBI has a huge reach of branches and its network, financial services, and technologically superior banking infrastructure.

Assets and customer base together make the State Bank of India (SBI) the biggest public sector bank in India.

Public Sector Banks are those banks in which the government is the majority shareholder. These banks are meant to protect and safeguard the interests of the public, so in this sense, these banks are supposed to extensively cover all strata of the society for financial inclusion and further the government's policies.
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