Public Sector Undertakings (PSUs) banks in India are government-owned banks, where the majority stake (more than 50%) is held by the Ministry of Finance of the Government of India or State Ministries of Finance. These banks play a critical role in the Indian economy, with a focus on social welfare objectives, such as extending financial services to underserved and rural areas. The shares of these banks are listed on the stock exchanges, but the government remains the principal shareholder.
History of Public Sector Banks in India
Emergence of Public Sector Banks:
- State Bank of India (SBI): The first major step by the government into the banking sector came in 1955 when the Imperial Bank of India was nationalized. The Reserve Bank of India (RBI) took a 60% stake in the bank, and it was renamed the State Bank of India. In 1959, the seven other state banks were made subsidiaries of SBI under the State Bank of India (Subsidiary Banks) Act, 1959.
- Nationalization of Banks in 1969: On 19 July 1969, the government, under Prime Minister Indira Gandhi, nationalized 14 major private banks, with a total deposit of ₹50 crores. This nationalization increased the government’s control over the banking system, with 84% of bank branches coming under state control.
Before Economic Liberalization (1990s):
- By the 1980s, public sector banks held a dominant position, accounting for 90% of the sector by 1991. In March 1992, public sector banks had a combined total of 60,646 branches across India, with deposits of ₹1,10,000 crore.
- The majority of public sector banks were profitable, with only one out of 21 banks reporting a loss during this period.
Liberalization in the 2000s:
- Despite reporting a combined loss of ₹1160 crores in the late 1990s, public sector banks turned around in the early 2000s. By 2002-03, the sector reported a profit of ₹7780 crores, continuing with an even higher profit of ₹16,856 crores in 2008-2009.
Bank Mergers:
- SBI’s Consolidation: State Bank of India started consolidating its subsidiaries, first merging State Bank of Saurashtra in 2008 and State Bank of Indore in 2010. The remaining subsidiaries merged into SBI on 1 April 2017.
- Other Mergers (2018–2020): In 2018, Vijaya Bank and Dena Bank merged into Bank of Baroda. In 2020, a significant restructuring took place with several large mergers:
- Allahabad Bank merged into Indian Bank.
- Oriental Bank of Commerce and United Bank of India merged into Punjab National Bank.
- Andhra Bank and Corporation Bank merged into Union Bank of India.
- Syndicate Bank merged into Canara Bank. The mergers took effect on 1 April 2020.
List of Nationalized Banks (as of June 2024):
- State Bank of India (SBI): 57.54% government shareholding
- Punjab National Bank (PNB): 70.08%
- Bank of Baroda (BoB): 63.97%
- Canara Bank: 62.93%
- Union Bank of India: 74.76%
- Indian Bank: 73.84%
- Bank of India (BoI): 73.38%
- Central Bank of India: 93.08%
- Indian Overseas Bank (IOB): 96.38%
- UCO Bank: 95.39%
- Bank of Maharashtra (BoM): 86.46%
- Punjab and Sind Bank: 98.25%
Key Points:
- Public sector banks are a backbone of the Indian banking system, focused on social welfare and financial inclusion.
- Nationalization started with the establishment of SBI and expanded with the nationalization of 14 banks in 1969.
- Mergers have been a significant part of the banking sector in the 2010s and 2020s, driven by efforts to consolidate and strengthen the financial system.
- Despite challenges, public sector banks have remained profitable and have been integral in supporting government policies for financial inclusion.
These banks continue to be important players in the Indian economy, facilitating economic growth, and addressing the needs of the underserved population.