Indian Banking Sector

The Indian Banking Sector is in an evolutionary phase, particularly in the post reforms period, exhibiting several changes over time. The impact of reforms in the form of easing of entry norms and deregulation of interest rates has led to greater privatization of the Indian banking sector. The infusion of technology has added a new dimension to the way banking services are provided and the way banking is done by customers, and private banks, both, domestic and foreign, have played a leadin g role in the adoption of the same. Private banks are found to adopt aggressive product and price policies in the race for a bigger pie of the Indian banking sector. The increased level of competition seems to have induced consolidation of the sector with mergers, amalgamations and rationalization witnessed both among private sector and public sector banks. Most studies on the level of competition in the banking sector undertake the examination of the level of concentration in the sector as a whole. The present study augments this approach by examining bank group-wise levels of concentration. The premise of such an examination is that while individual banks chart their ways of responding to the changing environment and influence the structure of the sector, there may be fundamental difference in the nature of the competitive changes within different bank groups. Interestingly, the analysis reveals apparently conflicting trends in the Indian Banking Sector. On the one hand, entry of private banks has led to increase in the level of competition as revealed by secular decline in the Net Interest Margin; on the other hand, it has evoked consolidation within all bank-groups, leading to increase in the level of concentration. The study shows that increased levels of concentration are consistent with increased levels of competition. The nature and dimensions of the intra-bank group structural changes and their performance implications may throw light on the structure of the Indian Banking Sector that might emerge in the years to come and may reflect preliminary but vital indicators for an inquiry into what constitutes an appropriate and effective banking structure for the Indian economy.

The performance of Public Sector Banks (PSBs) in India is under scrutiny during the current year than ever before. The
proposal for merger of PSBs into five or six bigger banks is frequently brought on to the fore and the relevance of size in
relation to the operational performance assumed much prominence accordingly. Many of the research works in this area
considered Return on Assets (RoA) as the measure of the ultimate performance of the bank. But measurement of operational
performance through Operating Profit than the Return on Assets is considered in this study as the purposeful one. A
comprehensive study of operational performance of all the 20 PSBs as assessed by Operating Profit to the Average Assets, as
a measure of size of the bank, for a longer period of 12 years, i.e., 2005-06 to 2016-17 is undertaken.
The data indicated that Net Interest Margin (X14), Cost to Income (X16), Staff Cost to Total Income (X18) and Staff Cost to
Other Income (X20) are important determinants for the operational performance of the PSBs under study. The study
suggested that the managerial focus is required on Net Interest Margin and Cost to Income Ratio. Further, Staff Cost to Total
Income and Staff Cost to Other Income are to be monitored very closely and desired managerial intervention shall be made
for increasing the Operating Profit of the PSBs.