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RESEARCH ARTICLE

A COMPARATIVE STUDY ON THE PERFORMANCE OF PUBLIC AND PRIVATE

SECTOR BANKS IN INDIA
Pradip Kumar Pradhan

KEYWORDS:

Lecturer in Commerce G.M. College, Sambalpur, Odisha

The economic development of a country mostly depends upon the efficient

banking system. Indian banking system has undergone significant transformation
following financial sector reforms. The co-existence of both public and private sector
banks drives the banking sector to more competitive position. Indian banking system is
adopting best banking practices, new technology and customer friendly atmosphere with a
vision to strengthen their performance. This study strives to examine the comparative
performance of banking sector in relation to private and public sector banks. The
researcher has analysed several performance indicators of the banks to compare their
performance. The study is based on the secondary data retrieved from Report on Trend
and Progress of Banking in India .The study analyse the loan asset quality and price
earning ratio of banks to evaluate their performance. The scope of the study is limited to
the analysis of NPAs and price earning ratio (P/E ratio) of the public sector banks and
private sector banks for the period six (6) years i.e. from 2007-08 to2012-13. It examines
the trend of NPAs and price earning ratios in both public sector and private sector banks
.The data has been analyzed by statistical tools such as percentages, average, standard
deviation and correlation. The study observed that the private sector banks have achieved a
better performance compared to the public sector banks and the public sector banks needs
to improve their performance especially in management of non-performing assets.
ABSTRACT:

Public sector banks, private sector

banks, non- performing assets, price
earning ratio
Received on 15 June, 2015
Received in revised form, 28 June2015
Accepted, 5 July, 2015
Published 15 July, 2015

INTRODUCTION: Economic conditions of a

country basically depend upon the effectiveness of
banking sector. In India there was co- existence of
private and public sector banks. Banking industry is
a major sector of the economy that has achieved
renewed focus after financial sector reforms and the
entry of private sector banks. Both the public and
private sector banks have played a pivotal role in the
economic development of India. These banks are the
foundation of modern economic development and
linchpin of development strategy .It forms the core
of the financial sector of an economy. Banks are
improving the allocation of resources by lending
money to priority sector of the economy.
QUICK RESPONSE CODE

Corresponding author:
Pradip Kumar Pradhan
G.M. College, Sambalpur, Odisha

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These banks provide an interface for the savers

and investors among various indicators of
financial stability. The non-performing loan of
the bank assumes critical importance since it
reflects on the quality of asset, credit risk and
efficiency in the allocation and management of
resources. It also affects the profitability and
reputation of the organisation.
Presently, Indian banking system is in
developing stage. It developing its overall
performance in terms of technology, product
range and number of branches but still it is a
challenge to the banks to reach the rural areas.
The Reserve Bank of India is mainly concerned
with providing finance to the priority sectors,
weaker section of society and providing credit
under differential rate of interest scheme. After
the economic reforms in 1991, entry of many
private players has been permitted, as a result of
which the quality banking services is in
increasing spree due to competitive environment

Pradip Kumar Pradhan., IJMRI, 2015; Vol. 1(3): 144-148.

and diversified services are provided to the customer

to suit their needs. PSBs have already sacrificed a
lot of their profits for achievement of social
objectives as a part of their corporate social
responsibility. Due to cut throat competition and
upgraded technology, the PSBs are thinking about
improvement of their productivity and profitability,
which is essential to survive in a globalised
economy.
The future of PSBs would be based on their
capability to continuously build good quality assets
in an increasingly competitive environment and
maintaining capital adequacy and stringent
prudential norms. It has been felt that there is a need
to increase the performance of the banks in relation
to profitability and quality of loan assets.
In this context this study has undertaken an
empirical analysis for evaluating and comparing the
non-performing loans, profits and price-earnings
ratio of the public sector banks and private sector
banks of India to judge their performance.
Review of Literature: Dr. K. Ramesha (2003):
states that the co-operative banks have made
substantial progress in India, but it is not in respect
to cooperative values and philosophy as enunciated
in cooperative principles. The extension of financial
sector reform programmes mainly the prudential
standards to cooperative banking at par with
commercial banks. The paper identifies several
broad areas for the intervention of researchers under
three categories, i.e. prudential standards,
professional management and governance and
supervision and regulation against the backdrop of
financial sector reforms.
Sathya (2005) analyse the effect of privatization of
banks on performance and efficiency. The banking
sector in India includes domestic banks (private
sector, joint sector banks and fully PSBs) as well as
foreign banks. The objective of this study is to
analyse the impact of privatization on the banking
firms. The researcher has concluded that partially
privatized banks have performed better as compared
to fully PSBs in respect of financial performance
and efficiency point of view. Partially private owned
banks have continued to show improved

performance and efficiency after privatization.

P.Veerachamy- (2006) the researcher states that
the bank faces various difficulties in good
performance with respect to priority sector. His
study clearly deals with the performance of
primary co-operative agricultural and rural
development in Dindigul District in Tamil Nadu.
Further he analyzed and examined through his
study the impact of overdues of the banks. The
study revealed the external factor and internal
factor as to the cause of borrower not making the
due and the account becoming NPA. Default in
payment of credit is correlated with literacy and
illetracy of a borrower.
A. Ananth-(2007)- suggested that the Indian
banking and financial system has made
commercial progress in extending its
geographical spread and functions reach. The
study shows the performance of private sector
banks in the post liberalization era and analyzing
the cause of the poor performance and
suggesting the measures to improve upon it. The
study highlighted the strength and weakness of
only the private sector banks. Emitted various
financial problems and focus on the financial
problems and encourages new technology and
new products with the result the profitability and
efficiency can be increased.
Objectives of the study: This study is based
upon the comparative study of the performance
of public and private sector banks in India. The
main the objectives of the study are:
To study Comparison between asset
qualities of public sector banks and private
sector banks in India.
To compare the price earning (P/E) ratio of
various public and private sector banks.
To compare the overall performance of the
public sector banks and private sector
banks.
To suggest some measures for increasing
the performance of the banks.
Research Methodology: The present study is
analytical in nature. The researcher uses the
secondary data from the published source and

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145

Pradip Kumar Pradhan., IJMRI, 2015; Vol. 1(3): 144-148.

the period of study is for six years from 2007-08 to

20012-13 which is compiled from the reports on
trends and progress of banking in India and RBI
website. The scope of this study is limited to six
years data only and the data has been analysed by
using trend analysis, percentage, averages, standard

deviation and correlation.

The study is related to private sector banks and
public sector banks and in case of private sector
Banks it includes both old private sector banks
and new private sector banks.

Table 1 Gross and net NPAs of public and private sector banks of India
% of Gross NPAs to Gross
% of Net NPAs to Net
advance ( ` in billions)
advance ( ` in billions)
Public sector Private sector Public sector Private sector Public sector Private sector Public sector Private sector
banks
banks
banks
banks
banks
banks
banks
banks
404
130
178
65
2.20
2.47
1.00
1.09
451
170
210
74
2.00
2.90
0.90
1.29
599
176
293
63
2.19
2.74
1.09
1.01
746
182
360
44
2.23
2.25
1.09
0.56
1,178
187
593
44
3.30
2.10
1.50
0.50
1,650
210
900
59
4.10
2.00
2.00
0.50
838
175.83
422.33
58.17
2.67
2.41
1.26
0.83
0.83
-0.41
-0.81
-0.75
Gross NPAs

2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
Mean
r*

Net NPAs

# Source: Report on trend and progress of banking in India, various issues. r*- Coefficient of correlation

Table 2 Price Earning Ratios Of Public Sector And Private Sector Banks
Sl.No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37

Name of Banks
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Mean
Public sector banks
Allahabad Bank
3.4
2.2
5.2
7.1
4.8
5.3
4.67
Andhra Bank
6.1
3.3
5
5.8
5.0
4.1
4.88
Bank of Baroda
6.7
3.6
7.3
8.6
5.9
5.8
6.32
Bank of India
6.4
3.7
10
9.8
7.3
6.2
7.23
Bank of Maharashtra
6.6
2.4
4.9
8.6
6.1
4.0
5.43
Canara Bank
5.1
3.3
5.6
6.4
6.3
5.7
5.40
Central Bank of India
2.4
5.3
5.4
13.4
5.4
6.38
Corporation Bank
5.4
2.9
5.8
6.4
4.1
3.9
4.75
Dena Bank
4
2.2
4.4
4.9
3.7
3.9
3.85
Indian Bank
2.8
4.9
5.9
6.1
4.8
4.90
Indian Overseas Bank
6.1
1.9
7.1
8.3
5.6
9.2
6.37
Oriental Bank of Commerce
5.3
3
7.1
6.5
6.5
5.5
5.65
Punjab National Bank
7.3
4.1
8
8.4
6.2
4.9
6.48
Syndicate Bank
4.6
2.7
5.9
6.1
3.6
3.0
4.32
Union Bank of India
5.1
4.3
7.1
8.1
6.0
5.6
6.03
State Bank of India
10.1
6.2
11.2
16.4
8.7
7.8
10.07
State Bank of Bikaner and Jaipur
7.9
2.4
4.9
5.1
4.3
4.0
4.77
State Bank of Mysore
8.5
3.5
5.1
5.4
6.4
6.3
5.87
State Bank of Travancore
6.2
1.7
4.6
5.1
5.7
4.2
4.58
UCO Bank
7.1
3.2
3.1
7.4
4.5
6.0
5.22
IDBI Ltd.
8.6
4.3
8.2
9
5.2
5.6
6.82
Mean
6.34
3.15
6.22
7.37
5.97
5.30
5.71
Standard Deviation(S.D)
1.67
1.03
1.95
2.54
2.09
1.42
1.34
Private Sector Banks
Axis Bank
24.7
8.2
19.7
17.2
11.2
10.8
15.30
City Union Bank Ltd.
8.9
3.2
7.1
8.4
7.0
7.9
7.08
Dhanalakshmi Bank
7.1
5.6
36.6
34.2
17.6
147.6
41.45
Development Credit Bank Ltd
36.6
34.2
16.5
10.3
24.40
Federal Bank Ltd.
6.8
4.9
10.4
12.9
9.7
9.6
9.05
ING Vysya Bank
17.9
6.9
12.7
12.2
11.1
13.8
12.43
Indusind Bank Ltd.
33.5
7.6
18.9
21.3
18.7
18.6
19.77
Jammu and Kashmir Bank Ltd.
9.1
3.7
6.4
8.3
5.5
5.5
6.42
Karnataka Bank Ltd.
10.1.
2.9
8.9
9.9
7.3
7.1
7.22
Karur Vysya Bank Ltd.
8.7
4.6
7.4
8.9
8.0
8.8
7.73
Kotak Mahindra Bank Ltd.
21.2
14.9
19.9
21.5
22.0
22.2
20.28
Lakshmi Vilas Bank
5.3
15.7
9.5
7.8
8.6
9.38
South Indian Bank Ltd.
9.3
2.9
8.6
8.8
7.0
6.1
7.12
HDFC Bank Ltd.
28.5
18.3
28.1
27.3
23.2
18.9
24.05
ICICI Bank Ltd.
23.9
10.4
22.1
20.9
13.4
12.5
17.20
Yes Bank
24
4.9
14.7
13.2
11.7
13.70
Mean
17.20
6.95
17.27
16.89
12.45
20.00
15.13
Standard Deviation(S.D)
9.29
4.49
10.14
8.89
5.64
34.36
12.13
# Source: Report on trend and progress of banking in India, various issues. # - : data not available.

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Pradip Kumar Pradhan., IJMRI, 2015; Vol. 1(3): 144-148.

Performance analysis: Many factors are

responsible for the performance a bank or financial
Institution. The important factors among them are
the quality of loan assets they have and the price
earning ratio. Present study is based on the analysis
of asset quality and P/E ratio of public sector and
private sector banks in India.
Quality of loan assets: Quality of loan assets is an
important parameter to evaluate the performance of
financial organisation. The organisations having
more non-performing assets are characterised by
inefficient management of assets. It erodes the
profitability of the organisation through unrecovered
portion of interest and principal and excess
provisioning. An efficient management of financial
assets will helpful in maximisation of performing
assets as well as profit.
It is apparent from table-01 that gross NPAs of the
both public and private sector banks have shown a
rising trend since 2007-08 to 2012-13. The corelation value was 0.83, signifies that the gross
NPAs of the public sector banks has been growing
more rapidly than private sector banks. The
percentage of gross NPAs to gross advance of public
sector bank has been showing a increasing trend
(2.00 to 4.10) where as the private sector banks has
been showing a decreasing trend (2.90 to 2.00) from
2008-09 to 2012-13. Further this analysis shows that
the negative correlation between net NPAs (-0.41),
percentage of gross NPAs to gross advances (-0.81)
and percentage of net NPAs to net advances (-0.75)
of the public and private sector banks. The study
observed that the private sector banks performed
better than the public sector banks in terms of assets
management.
Price earning ratio: The price earning ratio is
another performance indicator of different banks.
The increasing trend of price earning ratio with
stability shows the effectiveness of management and
better performance of an organisation. This study
analyse the effectiveness and efficiency of
management and performance of the public and
private sector banks in India from 2007-08 to 201213.
From the above table it is found that the average

P/E ratio of private sector banks having 15.13%,

and public sector banks having 5.71% .The P/E
ratio of private sector banks having about to 3
times more than the public sector banks. The
maximum average price earning ratio of
individual public sector bank is 10.07 of State
bank of India, where as maximum average price
earning ratio of private sector bank is 41.45 of
Dhanalakshmi Bank. It has been observed that
the public sector banks have low price earning
ratio throughout the study period (from 2007-08
to 2012-13) in comparison to private sector
banks.
Further the analysis of the standard deviation of
the P/E ratios of both banks, it was found that
the price earning ratios are fluctuating heavily.
The average standard deviation of private sector
bank is about to 9 times higher than the public
sector banks i.e. 12.13 from public sector banks
i.e. 1.34, which shows that the price earning ratio
public sector banks have more stable in the
earning capacity in relation to the share price.
There was a mix trend of the price earning ratio
of both private and public sector banks but the
private sectors banks having very high
percentage in relation to public sector bank.
Hence, it can be stated that as a whole the
private sector banks shows an improved
performance.
Findings: On the basis of above analysis It is
found that the percentage of gross NPAs to gross
advance of private sector banks decreases
consistently from 2008-09 to 2012-13 i.e.-2.90
to 2.00, which shows an increasing performance
of the banks in terms of NPA management. On
the other hand the percentage of gross NPAs to
gross advance of public sector banks are in
increasing trend from 2008-09 to 2012-13 i.e.
from 2.00 to 4.10, which shows inefficiency in
management of NPAs of public sector banks.
Further, from the analysis of price earning ratio,
it is also found that the private sector banks are
provide more return on the investment in
comparison to public sector banks, which shows
that the performance of private sector banks are
better than public sector banks. Thus, as a whole

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Pradip Kumar Pradhan., IJMRI, 2015; Vol. 1(3): 144-148.

the private sector banks have showed an improved

performance in comparison to public sector banks of
India.
CONCLUSIONS: A strong banking system
flourish the economic development of a country and
the banking sector of India consists of both the
private and public sector banks. This study
highlights some of the major performance indicators
of both the banks. During the study period, it is
observed that the percentage of gross NPAs to gross
advance in case of private sector banks shows a
decreasing trend and in case of public sector bank it
is in increasing trend, which reveals that the private
sector banks have better performance than the public
sector banks. The co-relation between various
performance indicators of private and public sector
banks shows negative except the absolute value of
gross NPAs. The absolute value of gross NPAs
shows a increasing trend in both banks due to rise in
gross advance but the other indicators shows that the
private sector banks having better performance in
comparison to public sector banks. On the other
hand the price earning ratio of the private banks is
much more than the public sector bank, which
shows that private banks are successful in their
management to earn more return on their
investments.
The study finally concludes that the private sector
banks are increases their performance to a
significant level and capable of monitoring nonperforming assets effectively. However, the increase
in the gross NPAs and net NPAs ratio shows that the
performance of the public sector banks not effective
for proper monitoring of the asset quality they have.

It is suggested that the public sector banks must

improve their performance in assets management
and stringent action will be taken against the
defaulters. The public sector banks must
improve their technology at par with private
sector and Requires a customer friendly policy to
compete with other banks.
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How to cite this article:

Pradip Kumar Pradhan: A Comparative Study on the performance of Public and Private sector banks in India. International Journal of
Multidisciplinary Research and Information 2015; 1(3): 144-148.

International Journal of Multidisciplinary Research and information

148