The banking sector has traversed a long way during the last forty years passing through rough terrains and blind valleys. The bare-foot banker walks over the debris of some of the populist programmes. He also finds the biometric-based ATMs functioning in remote villages. Smart cards find a place besides the ration cards in the hands of village folks. Branchless banking is gaining ground, though slowly, as the new mode of banking in villages. Brick and mortar branches coexist with virtual branches in cities. Thanks to financial sector reforms, bank branches are functioning now like mini departmental stores, if not super markets, selling many financial products and services. That the banking sector is moving towards maturity could be seen from the increasing number of large advances - borrowings above Rs.25 crore - acquiring 33 per cent of the total credit outstanding. At the other end, the number of small advances of less than Rs.25,000 increasing to 3.86 crore, constitute 41 per cent of the total borrowing accounts.

The nationalisation of 14 commercial banks on 19 July 1969 was a great decision with wide ramifications for the Indian economy. At that time, Political considerations were the guiding factors than economic compulsions. Having introduced it in a great hurry, economic justifications were enlisted subsequently, shifting the focus from class banking to mass banking.

During the last four decades, fundamental changes have taken place in the Indian banking sector, in deepening and widening the scope of banking. Many populist programmes have been introduced resulting in different degrees of success or failure. When the winds of change through the process of liberalization, privatisation and globalization started blowing, partial privatisation of the public sector banks was initiated. While a joint sector in banking business has emerged as a result, new generation banks also appeared on the banking turf, making the race for supremacy - or for survival in some cases - very tough. The contours of banking business have changed significantly since then. Public sector banking has changed the banking map of the country extensively.

Looking back…

Despite a recorded history of banking development spanning over a century, banking sector in India was still in its formative stage in 1969. It was slowly getting stabilized, after being subjected to a uniform banking regulation since the implementation of the Banking Companies Regulation Act 1949, leaving behind the years of frequent bank failures and mergers. Establishment of the Deposit Insurance Corporation of India in 1961 started strengthening the confidence of investors and depositors in small banks. Yet banks bigger in size were absent and only the foreign banks were having an edge over the local banks in the volume of business handled. There were 73 scheduled commercial banks and 16 non-scheduled commercial banks in 1969.

The banking sector was very small in terms of both its branch network and volume of business handled. Its offices and outlets were not more than 8262, located mostly in big cities and towns. Deposits mobilised were Rs.4646 crore only, equal to less than half of the deposits of the smallest private sector bank today. The volume of credit extended by the banks was a small amount of Rs.3599 crore then. The nexus between bank deposits and the national income was not very strong. Bank deposits were equal to hardly 15.5 per cent of national income in current prices. Per capita deposit was Rs.88 and per capita credit was Rs.68 only. These figures reflect the then state of development of both the banking sector and the Indian economy.

Regional disparities in the availability of banking facilities were so acute that states like Arunachal Pradesh, Mizoram and Union territories like Lakshadweep, Dadra and Nagar Haveli and Daman and Diu, were not having any bank branch in 1969. In large parts of rural India, cooperatives and local money lenders were the major source of credit. There was heavy concentration of banking business in metropolitan centres like Bombay, Madras and Calcutta.

Emergence of public sector

Before the decisive step towards nationalisation of banks was taken in 1969, State Bank of India, along with its seven subsidiaries, was already in the public sector. State Bank of India was the biggest Indian bank having a deposit of Rs.1114 crore as on December 1969 (the year ending in those days was December and not March). Its total advances were Rs.747 crore and the branch network consisted of 1668 branches including eight branches abroad. Earning a net profit of Rs.2.80 crore in 1969, it could declare a dividend of 23 per cent. The share of State Bank of India group in the total deposits of the banking sector was 31 per cent, 27 per cent in credit and 31 per cent in branch network. Thus, the eight public sector banks then accounted for a reasonably good share of the total banking business.

On 19 July 1969, the Government of India promulgated Banking Companies (Acquisition and Transfer of Undertakings) Ordinance 1969 to nationalise the bigger commercial banks. The size of bigger bank was fixed at Rs.50 crore of deposits. There were then 58 Indian scheduled commercial banks in existence. And only 14 of them of were of this size, excluding the already nationalised banks in the fold of State Bank of India. The total paid up capital of these 14 banks was only Rs.28.50 crore. Their deposits were Rs.2629 crore and loans amounted to Rs.1813 crore. With 4134 branches, these banks were accounting for about 70 per cent of advances of the banking sector then. The pattern of growth of these banks since then can be seen from details furnished in Table.2.

Government of India announced the second round of bank nationalisation on 15 April, 1980, nationalising six more banks; Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab and Sind Bank and Vijaya Bank. While the first round of bank nationalisation was largely viewed as a political decision, this round, ironically, appears to have been prompted by the Reserve Bank of India and not by its political bosses. This was not, however, recorded in any official communication of the Reserve Bank, as testified by the authors of the History of Reserve Bank of India: 1967-1981, who have quoted Dr. I G Patel, Governor of Reserve Bank of India. Dr. Patel in his memoirs, Glimpses of Indian Economic Policy: An Insider's View, has disclosed: "such is the irony of life that one of the first steps I had to recommend to Mrs. Indira Gandhi was that she should nationalise another swathe of private banks." His reasoning was: "some of them, like Punjab and Sind Bank and Vijaya Bank, had become the personal fiefdoms of individuals who disregarded all rules and advice with impunity. They, with their shady dealings, were offering unfair competition to the nationalised banks." Instead of these two, six banks were nationalised.

With this, the number of nationalised banks went up to 20. But an ad hoc decision taken in 1993 resulted in the merger of Delhi-based New Bank of India with Punjab National Bank, another Delhi-based bigger bank. Their number came down to 19. Punjab National Bank became a shock-absorber again in 2003, when the ailing century-old private sector bank from Kerala - Nedungadi Bank Ltd - was merged with it. This was an indirect way of nationalisation, out of necessity. Another similar case was the merger of a private bank in distress- Global Trust Bank Ltd - with Oriental Bank of Commerce, a nationalised bank, in 2003.

In the 1990s, when the liberalisation of the financial sector was introduced, Industrial Development Bank of India (IDBI), the term lending institution, promoted IDBI Bank Ltd as a commercial bank. Later in 2004, by a process of reverse merger, IDBI merged with the younger bank and was classified by the Reserve Bank of India as a public sector bank.

As far as the other segment of the public sector banks - State Bank group - is concerned, one of the associate banks, namely State Bank of Saurashtra, was merged with State Bank of India in 2008. With this, the total number of banks in the public sector has come down to 27. Their share in the total deposits mobilised by the banking sector hovers around 73 per cent and in credit deployment it is 72 per cent as on December 2008. Share in total branch network remains at 69 per cent. Having installed 21,788 ATMs (as on March 2008), they account for 62 per cent of the total ATMs in operation.

Evolution of the joint sector

Financial sector reforms were introduced in stages, changing the total landscape of the Indian banking sector in the 1990s. The most far reaching outcome of financial sector reforms was the partial privatisation of public sector banks and liberalization of banking regulations. New generation banks in the private sector were permitted to be promoted. Some of the financial institutions took the lead in promoting new banks. UTI Bank Ltd (renamed later as Axis Bank Ltd) was the first to appear on the banking scene, promoted by UTI in 1991. ICICI, HDFC and IDBI followed suit. These banks and the others which came subsequently were computer-savvy and they have totally changed the complexion of banking transactions in the urban and metropolitan centres. The lethargic public sector banks could not remain in their brick and mortar branches. Their unions also could read what was written on the wall, though belatedly. Computerisation entered the portals of public sector banks, slowly to begin with. Later it spread out faster as many of the banks could bring all their branches under Core Banking Solution, resulting in total automation of banking transactions.

Strengthening the capital base of banks was one of the most important issues recommended by the Committee on Banking Regulations and Supervisory Practices appointed by the Bank of International Settlement (BIS) in 1991. Based on this, Narasimham Committee also recommended that Indian banks should attain the capital adequacy ratio prescribed under the BIS norm; all banks having international presence should attain a capital adequacy ratio of 8 per cent by March 1992 and other banks to achieve this ratio by March 1996. This stipulation necessitated the infusion of huge capital into the public sector banks. Though the Government of India could get the ownership of 14 banks by paying a compensation of only Rs.83.40 crore in 1969, it had to infuse more than Rs.4000 crore to their capital by then and it was finding it difficult to allocate additional funds for this purpose. Hence it was decided to allow the public sector banks to approach the capital market to raise fresh equity to meet their shortfall in capital requirements. An amendment of the two nationalisation acts was made allowing the banks to raise their capital subject to the condition that "the Central Government shall at all times hold not less than 51 per cent of the paid up capital of the bank."

When the prudential income accounting norms were introduced, some banks drifted into the red. Their accumulated losses were wiped out by the sole owner by contributing to their capital over the years. From 1992, the banks fulfilling certain requirements were permitted to raising capital from the public. Out of the 19 nationalised banks 17 have raised capital from the public, gradually reducing the share of Government of India from 100 per cent. The lowest level reached is in the case of Oriental Bank of Commerce. The details of the stake of the Government of India in different banks are given in Table 3. Two banks, United Bank of India and Punjab and Sind Bank, are yet to enter the stock exchange.

As far as the State Bank group is concerned, State Bank of India fully owns two of the associate banks and the remaining are only marginally privatised. The proposal of merger of the unlisted banks in the State Bank of India group is under consideration.

Expansion of the banking sector

Since bank nationalisation, besides quantitative expansion of the banking sector, there has been a qualitative expansion in certain segments. The first and the most visible change is the geographic spread of bank branches, reducing thereby substantially the regional inequalities in the availability of banking facilities. The branch licensing policy, with a strong accent on rural branch expansion, has been instrumental in facilitating the emergence of a large number of rural branches all over the country.

There has been an explosion in the number of branches - the service points, including extension counters, specialised branches and administrative offices of banks - from 8262 in 1969 to 77,773 in 2009. Accessibility to banking services has improved impressively as could be seen from the decline in the population per branch. It has come down from 60,000 in 1969 to 15,000 in 2009. The Reserve Bank of India, incidentally, was using this crude index - population per branch- as the yardstick for assessing the need for extending banking facilities at the district level.

An overwhelmingly large percentage of the branches have come up in hitherto unbanked centres. But for the thrust on opening new branches in the unbanked regions, the Union Territory of Lakshadweep could not have received the message of modern banking sailing into those distant islands. It became a reality because of the willingness of a public sector bank venturing into opening its branches in these remote islands. In the common banking parlance, it was not a profitable proposition to begin with. Over the years, however, two public sector banks have opened 10 branches and have built up good business in the islands.

It may be added here that banks of the new generation in the private sector, which emerged after the financial sector reforms, were reluctant to spread their branches into even the BIMARU states, when they started expanding. Banking operations in small places need a longer time for breaking even. The purely profit-oriented new generation banks do not have the inclination to take up less-remunerative business; only the public sector banks ventured into such places, incurring losses during the gestation period.

Reservoir of skilled manpower...

Indian banking sector has become a reservoir of skilled manpower managing the growing volume of financial resources. The composition of total manpower has changed significantly over the years. Its numerical strength in 1969 was only 2.20 lakh employees. It has grown into 8.99 lakh in 2007, after the voluntary retirement of a sizeable number of staff. Nearly 79 per cent of the staff -7.16 lakh - are employed in public sector banks. Regional rural banks, sponsored by them, have 63,614 staff working in their branches.

Poaching the trained staff of the public sector banks by the new generation banks in the 1990s has resulted in the migration of a good number of young staff to the new banks, with the bait of lucrative pay packets. The initial enthusiasm of migration appears to be waning, as attrition has spread to the new generation banks as well.

Rural banking expanded…

Rural India was a major beneficiary of the branch expansion spree of public sector banks in the 1970s. The number of rural branches has increased from 1833 in 1969 to 30,551 in 2009. For accelerating rural banking, Government of India introduced an institutional innovation, by creating a new breed of banks designed to operate in rural areas only. Regional rural banks, gramin banks, as they were called, were promoted by public sector banks, with the capital participation in the ratio of 50:15:35 - by the Government of India, the state government and the sponsoring public sector bank respectively. They were established by the Regional Rural Banks Act 1976. The first few banks were established by an ordinance in 1975, as the Government of India was in great hurry to promote rural banking. From 1975 to 1987, as many as 196 gramin banks came into existence in different parts of the country.

The ideological framework for these banks, as postulated by the Working Group, (headed by M Narasimham) was: "one of the more important objectives of the rural banks would be to attempt effective coverage of small and marginal farmers, landless labourers and rural artisans. The performance of these banks will be judged primarily by their success in coverage of such categories of borrowers towards meaningful productive activity and recovery of their advances rather than by the profit they make" (emphasis added). The rural banks were directed to lend to only the target groups at the differential interest rates prescribed by the regulator.

There was a lot of uncertainty about the continuation of these banks, when the financial sector reforms were implemented. However, some elements of liberalisation in their operations introduced since then have improved their performance. Relaxation of the restricted lending, partial de-regulation of interest rates and introduction of a promotion policy for their staff have resulted in strengthening their bottomlines. Some of them have grown stronger than the old generation banks in the private sector, operating under comparable conditions in some states.

After nearly three decades of existence, policymakers realised the necessity of enlarging the operational areas of gramin banks, providing them more space to expand. Based on the recommendations of working groups, which have studied this aspect, they were allowed to extend their branch network to the neighbouring districts on a selective basis. Amalgamation of gramin banks sponsored by the same bank at state level was considered necessary for their development. The process of amalgamation of gramin banks introduced recently is a step in the right direction in revitalising the operational capabilities of these banks. Since September 2005, silently and effectively, 108 gramin banks have been amalgamated at the state level, reducing their number from 196 to 88. Gramin banks sponsored by the same bank in each state were merged to form bigger banks. Expansion of their operational areas is beneficial to them, as some of them were stagnating, by operating in single districts.

The absence of perspective plan for rural banking and ad hoc decisions have stunted the growth of the rural banking sector during the last four decades. Regrettably, even now, a clear perspective plan is not visible.

Exposure to farm sector increased…

It may not be an exaggeration to conclude that the public sector banks have played an important role, along with other players, in supporting in green revolution in India. There was a time when banks were traditionally financing the wholesale trade of agricultural commodities but not extending credit for farm production. And the regulator was initiating selective credit control measures to curb the excessive credit flowing into hoarding of certain agricultural commodities. Food scarcity was emerging during the planning era as a formidable challenge to the planners. The National Credit Council recommended the categorisation of agricultural sector as a priority sector in 1969. The regulator then directed banks to extend credit to this sector on a priority basis. Over the years, the number of sub-sectors under the priority sectors has increased with the recommendations of various committees and the credit targets were revised upwards, with the finance ministry taking the lead. Targets were fixed and revised on ad hoc basis.

In December 1969, total amount of credit lent as direct credit to farmers was a paltry sum of Rs.116 crore, accounting for 0.30 per cent of total bank credit. The share of public sector banks was Rs.96 crore. The number of farmers assisted was 5.43 lakh. Private sector banks' exposure to this sector was insignificant at Rs.20 crore. These banks continued to have their calculated indifference to farm financing even now.

Banks were given a target of extending 18 per cent of their net credit to the agricultural sector. Though all of them could not achieve this target, concerted efforts have been made trough the simplification of lending procedures, introduction of Kisan Credit Cards, reduction of interest rates and the propagation of modern farming techniques. Banks have realised that farm financing is not necessarily a losing proposition. Farmers' deposits constitute a sizeable portion of the total bank deposits. The large number of highly indebted famers committing suicides was, no doubt, a sad reminder of the insensitivity of the lenders.

Twice during the last 40 years, the Government of India has come out with the programmes of waiving the debts of farmers. The first one called 'Agricultural and Rural Debt Relief Scheme: 1990' was implemented in 1990. Overdue debts up to Rs.10,000 lent by the public sector banks and the co-operative banks in the rural areas, fulfilling certain criteria, were written off under this scheme. Again in 2008, the Agricultural Debt Waiver and Debt Relief Scheme was implemented, providing debt relief to farmers financed by banks. Through these schemes, a large number of small farmers were able to close their overdue accounts. Schemes like these have mixed blessings; bankers can cleanse their balance sheets by closing large number of NPA accounts; but the re-payment ethics of the borrowers would be adversely affected. Farmers may be induced to defer the repayments, hoping for such debt waiver schemes to be repeated. Another set of argument insists that one of the causes of rural poverty being the debt burden, its waiver leads to poverty alleviation. Banks are compensated, though the reimbursement is partly deferred and the farmers are happy. What impact this may have on the future repayment schedule does not appear to be anybody's concern as of now.

International presence widened…

Small as they were, Indian banks had very little presence abroad in 1969. Only eight among the 14 banks and the State Bank of India had overseas branches. During the last forty years, there has been an impressive cross-border expansion. Today, public sector banks operate in 34 geographies having over 186 branch offices as well as Rep. Offices. Travelling a long way from their initial hesitancy to step into alien territories, some of them have taken over small banks abroad. In Moscow, for example, State Bank of India owns 60 per cent of Commercial Bank of India, with Canara Bank owning the remaining 40 per cent. In Indonesia, State Bank of India owns 76 per cent of PT Bank Indo Monex.

Bank of Baroda, which calls itself as India's International Bank, has a larger branch network abroad compared to State Bank of India, which has wider presence overseas. The former has 72 branches in 12 countries, whereas State Bank of India is present in 34 countries with 52 branches. Our neighbouring country, Nepal, was not having the offices of any of the Indian banks till recently. State Bank of India has established Nepal SBI Bank Ltd in Kathmandu with 11 branches in the Himalayan kingdom. Bank of India has developed long time association with Japan, having two branches. Operating in 15 countries, it has 29 branches and Rep.offices.

Since the liberalization of international business, some of the smaller banks in the public sector also have ventured to set up their offices in hitherto untapped international markets. The Gulf region is one such market, where banks like Corporation Bank have opened their Rep.offices. Indian banks have crossed the China wall, sailed to the country down-under; ventured into Vietnam and now one of them has South America on its radar. IDBI Bank has plans to open a wholesale bank branch in Bahrain. Three public sector banks - Andhra Bank, Bank of Baroda and Indian Overseas Bank - have signed an agreement to set up the India BIA Bank (Malaysia) Bhd, which is expected to start functioning from September 2009 in Kuala Lumpur.

London, Hong Kong, Singapore and New York are the international financial centres, where Indian banks are flocking in to serve the people of Indian origin. Of late, industrial towns in China are emerging as the destination for some of these banks.
Details of profitability of the foreign outfits are normally not published by banks concerned. The global financial melt down would have made some dent on the bottomlines of some of them. Cautious as these banks are, the impact may not be very large. One of the banks, which has published its financial results of FY2009, provides a positive feature of international banking. Bank of Baroda reveals that its foreign branches generate 22.5 per cent of its total business and 21.2 per cent of the gross profit.

Innovations: good, bad and ugly

Ownership of banks has enabled the Government of India to introduce many innovations in banking, institutional and procedural, during the last 40 years. Some of them were operationally successful, some were populist moves and a few were failures. Promotion of a hybrid rural credit agency called Farmers Service Society was one of them. Public sector banks were asked to promote these societies in selected districts. A few of them were successful in providing integrated service to farmers besides credit. This experiment did not last long, thanks to the resistance of the cooperative lobby. In the developmental programmes implemented in 1971 through Small Farmers' Development Agency as well as Marginal Farmers and Agricultural Labourers' Development Agency, banks were assigned the role of lenders to these target groups. These programmes were over-shadowed by the more grandiloquent schemes later. But all of them have had their own impact on the banking sector, inducing even the indifferent private sector banks to involve themselves in these efforts.

For accelerating the flow of credit to the small scale industries sector, banks were asked to open specialised SSI Finance branches in centres having the concentration of small scale industries. A large number of them were opened all over the country, manned by specialists. Small and Medium Enterprises (SME segment) also were included in the priority list. For extending housing finance, special housing finance branches were opened in big cities. Over-enthusiasm in lending to these segments has resulted in many cases the bulging of non-performing assets. Except a few housing finance companies set up by some banks as subsidiaries, could not remain in business. Having nurtured consumerism by issuing indiscriminately the credit cards, particularly after the liberalisation of banking business, some of them now find that the retail credit segment causing concern.

Lead bank scheme

One of the most innovative programmes implemented since bank nationalisation is the Lead Bank Scheme covering all the districts in India. Its achievements include the spatial branch expansion, identification of the spatial gaps, formulation of district credit plans, forging the link between banks and district developmental authorities through the District Consultative Committees and ensuring the flow of credit to the needy segments at the district level. Unique in its approach, it has assigned the role of planners to the grass root-level branch managers. Perhaps, nowhere in the world, bank managers play such a role. Thousands of unbanked villages now find a place in the banking map of the country as a result. Credit plans, despite their limitations, are being prepared for every district, going into greater details and are being monitored regularly at the block level and district level meetings.

Over the years, however, the scheme has acquired the features of a form-filling ritual with an increase in the number of committees reviewing the performance of banks at many levels. Recently a high level committee was appointed by the Reserve Bank of India to review all aspects pertaining to the Lead Bank Scheme. Rejuvenation of this innovative scheme is expected as a result.

Differential Rate of Interest scheme

Much before the invention of micro-finance institutions, this scheme was introduced in 1972 with the objective of providing credit to people living below the poverty line, at concessional rate of interest. Public sector banks were mandated to lend one per cent of their credit under this scheme at an interest rate of four per cent to eligible borrowers. It was a thoughtfully conceived lending scheme aiming at the welfare of the poor, without burdening the banks with huge interest loss. Later in 1978, private sector banks were also roped in. The ceiling on advances was fixed at Rs.6500 per borrower. The beneficiaries were the poor from both rural and urban areas. The income criteria adopted for fixing the eligibility was that in urban areas the family's annual income should be less than Rs.7200 and in rural areas it was to be less than Rs.6400. It was stipulated that 33 per cent (later raised to 40 per cent) of the DRI advances should be made to borrowers belonging to scheduled castes and scheduled tribes in the villages.

Regrettably, the banking sector has never been able to reach the target of one per cent. As on March 2007, there were 2.60 lakh borrowing accounts under this scheme; the amount lent is Rs.634.46 crore accounting for 0.06 per cent of the total credit. The number of accounts has been consistently declining from 1991, incidentally after the financial sector reforms were introduced, from 34.49 lakh to less than 3 lakh at present.

Integrated Rural Development Programme

A massive poverty-alleviation programme called Integrated Rural Development Programme (IRDP) was launched in 1980 assigning a specific role to public sector banks to work with the state authorities. It was a self-employment-oriented programme financed by banks and supported by sumptuous subsidy from the state government. Ambitious targets were fixed for the disbursement of subsidies and banks were asked to extend credit accordingly. Credit started flowing, when the beneficiaries appeared to be more interested in grabbing subsidies than in utilising diligently the borrowed funds. The result was faster growth of the amount lent by banks than an increase in the number of beneficiaries moving above the poverty line.

Though the objectives of the programme were very laudable, operationally it turned out to be a subsidy-disbursement programme. End-utilisation of the loans could not be ensured in majority of the cases, leading to the emergence of overdues. A second dose of credit plus subsidy was considered to enable the beneficiaries to remain above the poverty line, presumably having crossed over it from the first dose of credit availed. More bank credit flowed into the rural sector, with hardly any visible impact on the living conditions of the beneficiaries. The Draft Approach Paper of the Tenth Five Year Plan published by the Planning Commission observed: "a disturbing feature of the IRDP in several states has been the rising indebtedness of the beneficiaries of IRDP." This programme is now made a part of Swarn Jayanti Gram Swarozgar Yojana by combining it with other similar programmes.

Public sector banks in FY2009

Global financial melt down does not appear to have made any dent on the bottomlines of public sector banks in India during FY2009. Even those banks having international presence in many geographies, did not experience any decline in their profit position during the year. Except three banks, which have witnessed a fall in net profit compared to the previous year, all other banks have shown better performance in earning profits. Where the re-payment schedules of big borrowers and exporters were under pressure, higher provisions were made out of the profits. The performance indicators of 27 public sector banks during FY2009 are furnished in Table.4.

State Bank of India, the oldest bank, leads with a total business of Rs. 1,287,576 crore and has a wide spread network of 11,448 branches. It is the only Indian bank which finds a place among the top banks at the international level having over 10,000 branches. During the last forty years, it has grown spectacularly from a small volume of business-Rs.1861 crore and 1668 branches. In 1969, earning a net profit of Rs.2.76 crore, it could pay a dividend of only 23 per cent, while in 2009 it has declared a dividend of 290 per cent, with its net profit surging to Rs.9121 crore. Today, it stands far above the other Indian banks in size and stature. However, one of the irritants in its financial performance is the higher net NPA ratio - 1.76 per cent - the highest among the public sector banks.

Punjab National Bank stands firm at the second position impressively improving its bottomline to cross the Rs.3000 crore level, closely followed by Bank of India. Next to State Bank of India, Punjab National Bank has declared the highest rate of dividend: 200 per cent. The dividend rates vary widely among other banks from zero to 130 per cent. Three of the associate banks of State Bank of India have richly rewarded their shareholders by paying dividends above 100 per cent. State Bank of Travancore goes up to 130 per cent; State Bank of Bikaner and Jaipur makes it at 120 per cent and State Bank of Mysore comes next with 100 per cent.

Though there has been substantial improvement in credit management, as reflected in the reduction of net NPA ratios, it remains above one per cent in the case of as many as eight banks. It hovers between 0.50 per cent to1.0 per cent in ten banks and on the other end three banks could peg it down to less than 0.25 per cent. During the current year, a few of them, however, have found that their NPA ratios have marginally increased.

As far as the capital adequacy ratio is concerned, it is quite satisfying to note that 22 banks out of 27 have the ratios above 12 per cent. Six among them have it above 14 per cent. On the lower end, five banks could not reach the level of 12 per cent. The lowest ratio is in the case of Bank of Maharashtra -10.75 per cent -and the highest is that of State Bank of Bikaner and Jaipur-14.52 per cent.

Looking ahead

The transformation of the Indian banking sector during the last forty years, from traditional brick and mortar banking to modern IT-savvy banking, has taken place without a well-conceived perspective plan. Geographically and functionally, some segments still remain under-developed. Ad hocism has been the hallmark of our planning exercise in all spheres. The number of banks has been varying, while that of the old generation private sector banks is steadily declining. The talk of bank mergers is made loudly sometimes and murmured occasionally, without any concrete plan. Performance of the public sector banks has revealed that in the Indian context, public-private partnership in banking is the more expedient mode of banking. Total privatisation is neither feasible nor practical. Similarly, total reliance on state-owned banking is not an ideal mode because of political and bureaucratic interventions.

Having observed the pattern of growth of banking during the last forty years, it is necessary to draw a road map for sustained banking development during the next ten years. The desirable number of banks and the ideal size of banks to be internationally competent cannot be decided by the aspirations of the willing banks or the hesitations of the reluctant banks or by the mandarins of the North Block. It could be designed by a Banking Commission appointed by the Government of India, for the specific purpose. The Commission can look into various aspects like the future shape of rural banking, the local area banks, micro finance institutions and the credit needs of the infrastructure industries. Lending to priority sectors continues since 1969, without any scientific basis for fixing the targets. The Commission can examine the composition of the segments, which are included among the priority sectors over the years. Professionalisation of bank management and strengthening the bank boards with specialists is an important task, which needs to be worked out by the Commission. Financial inclusion could be made operationally more meaningful before the public sector banks enter the golden jubilee year.