The public sector banks (PSBs) have reason to rejoice. As per newspaper reports the combined profit of PSBs in the last fiscal would be around Rs. 8,000 crore. The increase is more than 100 per cent. Their profits have translated a return on assets of about 0.75 per cent which was 0.50 per cent in 2000-01. Even the position of three weak banks has considerably improved. The Indian Bank has reported a net profit of Rs. 33 crore for the first time in six years. The net profit of UBI skyrocketed by 600 per cent from Rs. 19 crore in 2000-01 to Rs. 129 crore in 2001-02. UCO Bank has also not lagged behind. Their net profit galloped by 400 per cent from Rs. 33 crore in 2000-01 to Rs. 165 crore in 2001-02. The stigma of ‘weak bank’ has been removed from UCO and UBI and their status has been elevated.

Public sector banks have covered a long distance. More than three decades have passed since 19th July 1969 when fourteen Indian banks with deposits of more than Rs. 50 crore were nationalized. A new era started and resources, which were locked for the private sector for their own business use, were freed for the common people. Again on April 15, 1980 six more banks with deposits of not less than Rs.200 crore were nationalized. The number of PSBs rose to 28. Subsequently, in 1993 with the merger of the then New Bank of India with the Punjab National Bank, the number of PSBs came down to 27.

The initial emphasis was on the spread of branches in every nook and corner of the country. The achievement was incredible. The branch network of commercial banks increased from 8,261 in June 1969 to 65,521 in March 2000. The population coverage per branch office decreased from 65,000 in 1969 to 15,000 till date. As compared with 1969 and that of September 2001, deposits increased from Rs. 4,822 crore to Rs. 10,11,461 and credit flow from Rs. 3,467 crore to Rs. 5,67,707 crore.

At the time of nationalization the priority sector concept was introduced by bringing agriculture, small-scale industry, retail trade, small business and small transport operators under its fold. The list, however, widened with the passage of time. It was made mandatory for banks to provide 40 per cent of their net credit to this sector so that they too were covered by the banks’ funds for their economic uplift. Banks were actively involved in poverty alleviation and employment generation programmes. It was also made mandatory for the banks to provide 18 per cent of their net credit to the agricultural sector to free farmers from the clutches of the money lenders besides making funds available for agricultural development. Policy guidelines yielded results. The agricultural credit increased from Rs. 162 crore (5.4 per cent) in 1969 to Rs. 4,107 (16.5 per cent) in March 2000 and during the same period credit to small scale industry increased from Rs. 257 crore (8.5 per cent) to Rs. 43,560 crore (17.6 per cent) and the credit for priority sector increased from Rs. 441 crore (16.4 per cent) to Rs. 11,5,267 crore (42.7 per cent). Enhanced bank credit to the farm sector became instrumental for the success of green revolution and increase of food grain production in the country.

When economic reforms hit the world, India was not far behind. Along with the economic reforms banking sector reforms also set in. The recommendations of the Narasimham Committee initiated first generation reforms in 1991 with the introduction of prudential recommendations of the Narasimham Committee in 1998 became the road map for the second generation reforms in the banking industry. Interest rates were deregulated and the banks were allowed to fix their own rates both for deposits and lending, save few exceptions. As precursor to liberalisation, statutory liquidity ratio (SLR) and cash reserve ratio (CRR) were reduced considerably from 38.5 per cent and 15 per cent of early nineties to the present level of 25 per cent and 5 per cent respectively.

Though all these measures made the PSBs comfortable, they were saddled with huge non- performing assets (NPA), the result of implementation of prudential norms and the net effect was that they incurred a huge loss of Rs. 3,293 crore in 1992-93 and again Rs. 4,349 crore in 1993-94 though they could recover their position and earn meagre profit of Rs. 1,116 crore in the next year, i.e. 1994-95. The position of some of the banks became alarming due to huge losses incurred by them and the Government, being the owner of the banks, rightly came forward to rescue them with capital support. Between 1992-93 and 1998-99, the Government provided capital support to the PSBs to the tune of Rs. 20.45 thousand crore. Subsequently, till 2000-01 as many as 12 PSBs raised Rs. 6,400 crore from the market.

Public sector banks boast of about 77 per cent of market share in deposits and 73 per cent in advances. Though their market share has declined to some extent in recent years due to emergence of new private sector banks and some foreign banks, they still occupy the pivotal position in the country’s banking topography. The criticisms that PSBs failed to generate adequate profit in the era of nationalization does not hold good as profitability was not the objective set for by the management of these banks at that time. The principal objective of social banking has been fruitfully accomplished. When liberalisation came in the nineties, PSBs soon recovered after an initial setback. Their net profit, as percentage of assets, increased from (-) 0.07 in 1995 –96 to 0.57 in 1999-00. Capital adequacy soared to 10.99 per cent, above the benchmark level of 9 per cent, and net NPA to net advances decreased from 9.85 per cent in 1998-99 to 8.79 per cent in 2000-01.

PSBs have increased in strength and some of them even returned capital to the Government. They care for the persons even below the poverty line with a rural branch network of 42.9 per cent whereas the rural branch network of private banks is only around 6 per cent and the foreign banks do not have any rural branch at all. There is, however, no room for complacence. Under the recent VRS about one lakh employee have left the PSBs. The need of the hour is trained manpower with competitive mind and agility and infusion of technology to compete with private and foreign banks.

During the last three decades the public sector banks have increased in strength and penetrated in all sectors of the economy. But still they have to go a long way and adapt themselves to the changed scenario and face greater challenge in the days ahead.