Since the last fifteen years, Public Sector Banks (PSBs) in the India have been losing around 1 percent market share on an average to the private sector banks, according to credit rating agencies.
The banking sector in general has faced fierce competition over the last decade with the maximum effects on the PSBs. Main reason for losses being encountered by these public sector banks is their inability to match up to the standards of services provided by their private counterparts.The market share of PSBs in terms of total assets was 75.6% in 2003, which fell to 70.5% in 2007. However, the share of private banks rose from 17.5% to 21.5% in 2007.
Although these private banks face a lot restrictions in terms of limited branches and government policies to name a few, they ensure quality banking thus making it even more difficult for the PSBs. They also have a distinctive product line up which includes hedging facilities to high profile clients. Their flexibility and high-end infrastructure, adds strength to their competitive nature in terms of services, in comparison to the PSBs. According to many reports, the main problem being faced by PSBs is modernizing themselves and improving infrastructure. The government must take steps to initiate and improve computerization in a huge number of PSB branches. Not just computerization, issues such as networking and carrying out business process re-engineering should also be taken care of. As per RBI data, although 86% of PSBs are fully computerised, only 44% are actually functioning under core banking solution platform. Further, poor performance of PSBs can be attributed to inefficient work force and an out dated human resource infrastructure.
Although profitability of Indian banks is on a rise, but PSBs are still lagging far behind in comparison to their private counterparts.