THE GENESIS
The Indian banking scenario has moved a long way from the time when a bank was a mere deposit taking and money-lending institution shrouded in conservatism and managed by persons whose sole objective was maximum profits, with minimum risks. A banker was then regarded as a person who would extend a helping hand during favourable times and promptly withdraw it when it rained. Thus, bankers came to be identified as fair-weather friend and it was this image that was primarily sought to be erased when, in the post- Independence era, the Government set about the task of introducing reforms in this sector that would make banks a vehicle for socio-economic progress in tune with national priorities. Consequently, it was decided that alongside the banks under private management, the Government would have a bank of its own to garner resources and deploy them for productive purposes. As a result, State Bank of India came into existence in 1955 by nationalising Imperial Bank of India through an Act of Parliament. Thereafter, over the successive five year plans as the role of the Public Sector became more and more pronounced, Government initially introduced social control of banks and ultimately nationalisation in 1969 to gain the commanding heights of the economy which, in turn, would lead to a wide branch network and eventual upliftment of the rural poor through directed lending. In this scenario, there were 269 scheduled banks. The regional rural banks apart, the main players comprised four separate groups, viz.

• the SBI Group consisting of SBI and its 7 associates
• the 20 nationalised banks
• the 26 existing private sector banks which were not brought into the net of nationalisation
• the foreign banks.

While the public sector banks comprising of the SBI group and other nationalised banks commanded a large chunk of the resources through their vast network, the private sector banks at that point of time were those that were considered too small to be nationalised. Given the national priorities in the pre-reform days, the private sector banks had no option but to concentrate their operations in selected regions where they met the specific needs of their clients. This gave them the advantage of building up an asset base comprising loans to local industries and small and medium business. On the other hand, the public sector banks grew rapidly through branch expansion, recruitment, deposit mobilisation and lending to sectors identified as priority by the Government in its various policy pronouncements.However, in the process, efficiency of operations, which was the hallmark of private banking, took a back seat. Low productivity of a large number of staff contributed to high overheads which in some cases could not be neutralised by income from operations and many of the banks faced staggering losses. At the same time, their quality of service to the customer left much to be desired primarily because of a sense of complacency arising out of lack of accountability and spread of unhealthy trade unionism amongst the rank and file of the banking industry.The onset of the’90s witnessed the winds of change ushering in an era of liberalisation of the economy, which had its inevitable impact on the banking sector. The report of the Narasimhan Committee suggested structural changes, which were to be introduced in the existing banks in a phased manner. More importantly, however, with view to increasing the efficiency of the system through competition, the RBI granted licences to private sector corporate and large FIs like UTI, IDBI, ICICI, IFCI etc. to float banks focused to propel the economy into the 21st century through state-of-the-art technology and absolute identification with the customer. Since 1993-94, nine new private sector banks have come up viz. UTI Bank, ICICI Bank HDFC Bank, Bank of Punjab, IndusInd Bank, Global Trust Bank, Centurion Bank, Times Bank and IDBI Bank.

FEATURES OF OPERATIONS OF PSB’S
The distinguishing features of the present day private sector banks are product innovation and diversification, optimum use of state-of-the-art information technology, high level of capitalisation, focus on the customer and last but not the least, a team of specialised, experienced and highly motivated personnel. Each Bank has identified its own niche area of business to lend itself a distinct identity and a competitive edge.

RESOURCE MOBILISATION
The new private sector banks commenced operations from April, 1994 when UTI Bank Ltd., promoted by the three financial titans viz. Unit Trust of India, Life Insurance Corporation of India and General Insurance Corporation launched their banking operations. In this short span of time the performance of these banks has far exceeded expectations so much so that it has boosted the confidence of RBI and Government of India to grant further licences for newer private banks start operations. Notwithstanding the impressive growth of private banks so far, the main challenge, which they are faced with, is the mobilisation of relatively cheaper funds. This is particularly because as against the vast network of branches of the public sector banks, the private banks are located mostly in the major centres of the country, which limits their access to bulk deposits. As a result, they are, per force, required to raise resources mostly by way of certificates of deposits and high interest fixed deposits. Moreover, the deposits so mobilised will initially tend to be volatile in nature and the banks will have to be constantly on the lookout to supplement and/or augment the deposit base. In the face of stiff competition from rivals within the private sector as also from their counterparts in the public sector and particularly from the foreign banks, the work of mopping up resources becomes all the more challenging.

DEPLOYMENT OF FUNDS
As regards deployment of the resources mobilised, after meeting the statutory obligations under SLR and CRR the private sector banks are looking for profitable ventures for outlay of their funds, which would bring in the maximum returns. In this context, it is important to remember that, as explained herein above, these banks are raising resources at an average of 14% to 15% and as such, to maintain the minimum spread their rates of interest on loan funds is necessarily higher than the average rate at which the public sector banks lend. In the area of fund based advances, the private sector banks are focusing on export finance to viable EOU bill discounting against letters of credit of first class banks and working capital to large and medium corporates. This apart, the RBI guidelines in respect of priority sector lending are equally applicable to the new generation of private sector banks also. Consequently, the latter are constantly on the lookout for technically feasible and economically viable projects in the agricultural segment as also under small-scale industries and small business finance to achieve the benchmark of 40%.In regard to project financing, in the present backdrop, given the short term nature of the bulk of deposits of the private banks and in order to avoid an asset liability mismatch, these banks are being compelled to restrict their exposure to long term projects.To supplement the income from advances, these banks are relying increasingly on fee-based income from non-fund based advances, e.g., opening of import and inland letters of credit and issuance of bank guarantees and deferred payment guarantees. The banks are also looking for other alternative sources of such fee-based income.Another important area where the banks are profitably deploying their resources is in the personal segment under various approved schemes viz. for housing, purchase of vehicles, consumer durables, etc.Recently RBI has permitted the banks to undertake leasing activity. Lease finance, apart from conferring benefits on the lessee companies, would help the banks make better tax planning through depreciation on leased assets. Merchant banking activities also provide these banks with yet another opportunity for increasing their fee based income.One of most important advantages enjoyed by the new breed of banks is that they are not weighed down with problems of sticky advances and poor recovery, which are the contributory factors towards creation of non-performing assets which there public sector counterparts have accumulated over the years. As such, the overall quality of assets is generally of a high order and the banks are continiously monitoring their portfolios to ensure that there is no slipback in this regard.

TECHNOLOGY
All the private sector banks have adopted up-to-date technology in banking operations devised by the leading software and hardware developers. With the aid of this technology, the banks are in a position to render top-flight customer service virtually in a matter of minutes. The salient features of technology-driven banking include Automated Teller Machines (ATM), telebanking facilities and banking through interconnected branches, all fully computerised. All these products together have contributed to the previously unheard of concepts like Any time banking/ All time banking / Anywhere banking. With rapid obsolescence in the technological sphere, banks are all set to progress by leaps and bounds with the adoption of the upgraded technology.

GENERAL
Private sector banks are mainly focused to render personalised and individual service to the customer. Flatter hierarchical structure leading to faster decision-making and much lesser delivery time has already ensured a captive clientele for these banks. Further, the private sector banks derive their main strength from a team of experienced, professional and dedicated band of executives who have served the banking industry in various capacities in the past. Moreover, apart from technology, the modern-day private banks rely heavily on the ambience of their branch premises. The architectural design and decor are tailor-made to impart a feeling of homeliness to the customers. In short, the slogan of the private banks is "convenience banking" and "banking for satisfaction".

THE PROBLEMS
While private banking has become an integral part of the Indian Banking scenario in the liberalised set-up, the concept has brought with it its own unique problems, which we shall highlight in brief. The banks are suffering from the absence of a level playing field. While the banking system is subjected to statutory pre-emption, the financial institutions and NBFCs are not required to do so. Further, the recent RBI measure of freeing of deposit rates in respect of registered NBFCs, complying with prudential norms and credit rating requirements are a drawback for the banks. The other major problems, which are faced by the private banks, are:

• Some of the Government departments and Public Sector Undertakings do not accept guarantees issued by the private sector banks.
• The priority sector lending benchmark of 40% has been made equally applicable to private sector banks on par with their public sector counterparts without reckoning the fact that the former are handicapped by a very small network of branches and that too predominantly in the urban areas. It would have been equitable had RBI fixed a lower benchmark and gradually increased it to the desired level.
• The private sector bank managements should find equal representation during credit policy meetings held by the RBI only with the managements of the public sector banks.

THE FUTURE
Notwithstanding the problems, the new generation of banks with their repertoire of skill, technology, customer-friendly approach and market oriented product formulation are poised to emerge as leading players in the banking sector in the days to come. In fact, by posing stiff competition to the established players in the industry, they are serving the cause of bringing out the best in the public sector banks also. They are also serving to introduce an element of transparency in the accounting systems of the banks and in the process some of the inefficient banks are being gradually marginalised. It is, therefore, only fair to expect that in the emerging banking scene the private banks will be a major force to reckon with.