A PROJECT ON COMPARISION OF PUBLIC BANKS AND PRIVATE BANKS WITH CAMEL METHODOLOGY
Prof. AMIT BHATTACHARYA
What are the trends observed in the performance of Public Sector and Private Sector Banks? How do they perform when compared across the critical component of Capital Adequacy, Asset Quality, Management Efficiency, Earning Quality, Liquidity and Sensitivity to Market? A modest effort to compare public and private sector banks on the basis of six such crucial components
OBJECTIVES OF STUDY
➢ To do an in-depth analysis of the model.
➢ To analyze 6 banks to get the desired results by using CAMELS as a tool of measuring performance.
LIMITATIONS OF THE STUDY
➢ The study was limited to six banks.
➢ Time and resource constrains.
➢ The method discussed pertains only to banks though it can be used for performance evaluation of other financial institutions.
➢ The study was completely done on the basis of ratios calculated from the balance sheets.
➢ It has not been possible to get a personal interview with the top management employees of all banks under study.
Public Sector Banks
Public sector banks are the ones in which the government has a major holding. They are divided into two groups i.e. Nationalized Banks and State Bank of India and its associates. Among them, there are 19 nationalized banks and 8 State Bank of India associates. Public Sector Banks dominate 75% of deposits and 71% of advances in the banking industry. (Indian financial system)
Private Sector Banks
Private sector banks came into existence to supplement the performance of Public sector banks and serve the needs of the economy better. As the public sector banks were merely in the hands of the government, banks had no incentive to make profits and improve the financial health. Nationalized killed competition and stifled competition in banking. Banks operated in regulatory environment with administered rate of interest structure, quantitative restrictions on credit flows, high reserve requirements and significant proportion of lend able resources going to the priority and government sectors. This resulted in low levels of investment and growth, decline in productivity and erosion of profitability of banking sector. (Indian financial system)
Strategies and Challenges
Public Sector Banks
➢ The public sector banks are turning the spotlight on the customer and offering quicker, better service. That includes everything from ATM machines and computerized branches to never before seen marketing initiatives. Clearly, public sector banks have woken up to competition. ➢ Post-liberalization, several new generation private sector banks changed the face of the industry. Customers no longer had to stand in long queues or make 10 trips for loans to be sanctioned. ➢ These changes are taking place at a particularly fast pace in few of the banks including the State Bank of India, Corporation Bank, Indian Bank, Bank of Baroda and the Union Bank of India. ➢ Private sector banks brought in concepts like customer relations officers focused marketing teams and single window banking. Moreover, with new technology, private sector banks like ICICI and HDFC Bank could offer customer services like ATMs, phone banking, internet banking, automatic money transfer, mobile banking, Core banking solutions and computerized monthly statements. ➢ Recently a new technology of cheque truncation is being introduced. As against physical travel of instruments, under cheque truncation only the image of the instrument would travel. ➢ This would totally alter the face of clearing systems facilitating faster realization of instruments. It is currently being implemented on a pilot basis in India. ➢ Public sector banks’ focus had earlier remained on industrial credit, which was slowing down....
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