Public Sector Banks in India

Public Sector Banks in India

Introduction

Public Sector Banks (PSBs) are a major type of bank in India, where a majority stake (i.e., more than 50%) is held by the government.

In April 2019, Vijaya Bank and Dena Bank were merged with Bank of Baroda.

On 30 August 2019, Union Finance Minister Nirmala Sitaraman announced the merger of six public sector banks (PSBs) with four better-performing anchor banks to streamline their operation and size. Two banks were amalgamated to strengthen national presence, and four were amalgamated to strengthen regional focus. Subsequently, the number of public sector banks has been reduced to 12 from 27.

List of Scheduled Public Sector Banks (As on 23rd September, 2022)

List of Scheduled Private Sector Banks

Note: The name of UTI Bank has been changed to Axis Bank Ltd. w.e.f. July 31, 2007.

Other Types of Banks in India

• Bank owned by the State Government: State Bank of Sikkim (As on 22 September 2022).

• Regional Rural Banks (RRBs): There are 43 RRBs in India (As on 22 September 2022).

• Foreign Banks: There are 45 foreign banks in India (as on 22 September 2022).

Role of Commercial Banks

Commercial banks mobilise savings in urban areas and make them available to large and small industrial and trading units, mainly for working capital requirements.

The Indian banking system consists of commercial banks, both in the public and private sectors, Regional Rural Banks (RRBs), and cooperative banks.

Commercial banks are broadly classified into nationalised or public sector banks and private sector banks, with a few foreign banks. The public sector banks account for more than 92% of the entire banking business in India, occupying a dominant position in the commercial banking sector. The State Bank of India and its associate banks, along with another 11 banks, are the public sector banks.

Number of Scheduled Commercial Banks (SCBs)

According to the RBI, the number of all Schedule Commercial Banks is 137, which includes:

• 12 PSBs

• 43 Regional Rural Banks (RRBs)

• 12 Small Finance Banks (SFBs)

• 4 Payments Banks (PBs)

• 45 Foreign Banks

Historical Developments of Indian Banking

• Oudh Commercial Bank was the first complete Commercial Bank of India.

• The Imperial Bank was established in the year 1921 by merging three main Presidency Banks.

• The largest bank, Imperial Bank, was nationalised in 1955 on the recommendation of the Gorewala Committee and rechristened as the State Bank of India.

• In 1959, 7 regional banks were nationalised and given the status of Associate Banks of the State Bank of India.

• On 19th July, 1969, 14 big commercial banks with deposits worth Rs. 50 crores or more, on 15th April, 1980, six other scheduled banks were nationalised, bringing the total number of nationalised banks to 27 (19 + SBI + 7 SBI Associates).

• Before the merger of New Bank of India with Punjab National Bank (in 1993), the total number of nationalised banks was 28 (8* SBI and Associates + 14 + 6).

• After the merger of 'State Bank of Saurashtra' (in 2008) and 'State Bank of Indore' (in 2010) in the State Bank of India, the number of Associates of SBI has come to 5.

• After the merger of State Bank of Bikaner and Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala, and State Bank of Hyderabad with SBI, the number of SBI Associates has become zero.

Merger of SBI Associates

The 5 associate banks of SBI—

• State Bank of Bikaner & Jaipur (SBBJ)

• State Bank of Mysore (SBM)

• State Bank of Travancore (SBT)

• State Bank of Patiala

• State Bank of Hyderabad

and Bhartiya Mahila Bank (BMB) have been merged with the State Bank of India since April 1, 2017.

Reforms in the Banking Sector

• In recent years, the government has implemented various reforms to enhance credit discipline, responsible lending, and governance in the banking sector.

• Technological advancements, such as the Jan-Dhan-Aadhaar-Mobile (JAM) linkage, interoperable Bank MitraUPI, P, I, and DBTs, have significantly expanded digital transactions.

• The Reform Agenda for Public Sector Banks (PSBs), known as Enhanced Access & Service Excellence (EASE) Reforms, focuses on governance, prudential lending, risk management, technology-driven banking, and HR outcomes.

• Amalgamation of banks has improved sector efficacy by leveraging economies of scale, raising funds at a lower cost, enhancing financial capacity, and promoting technology adoption.

• Amendments to the Prevention of Corruption Act, 1988, prevent inquiry/investigation without approval for decisions taken by public servants in the banking sector, supporting prudent risk-taking.

• The Banking Regulation (Amendment) Act, 2020, ensures proper regulation of co-operative banks by enhancing professionalism, providing access to capital, improving governance, and ensuring sound banking through the Reserve Bank of India.

Digital Banking Units

Union budget 2022-23 had announced the setting up of Digital Banking Units (DBUs) with an objective to ensure the benefits of digital banking reach every nook and corner of the country.

75 digital banking UNITS (DBUs) in 75 districts of the country had been dedicated by the Prime Minister to commemorate the 75 years of independence of our country (Azadi ka Amrit Mahotsav) on 16.10.2022.

Final Thoughts

Public Sector Banks (PSBs) are the backbone of India’s banking system, where the government holds a majority stake. Over the years, several mergers have streamlined PSBs, reducing their number from 27 to 12, with institutions like SBI, PNB, and Bank of Baroda leading the sector. Alongside them, private banks such as HDFC, ICICI, and Axis Bank have played a vital role in expanding financial services.

India’s banking structure also includes Regional Rural Banks (RRBs), cooperative banks, and foreign banks, making it one of the most diverse financial systems. Historical milestones like the nationalisation of banks in 1969 and 1980, and the creation of the State Bank of India in 1955, have shaped today’s system.

Recent reforms such as the EASE agenda, digital banking units (DBUs), and UPI have modernised banking, making it more accessible and technology-driven. Together, these banks mobilise savings, fuel businesses, and drive India’s economic growth while ensuring financial inclusion across regions.