Public sector banks in India

Public Sector Undertakings (Banks) are a major type of government-owned banks in India, where a majority stake (i.e., more than 50%) is held by the Ministry of Finance (India) of the Government of India or State Ministry of Finance of various State Governments of India. The shares of these government-owned-banks are listed on stock exchanges. Their main objective is social welfare.

History

Emergence of public sector banks

The Central Government entered the banking business with the nationalization of the Imperial Bank of India in 1955. A 60% stake was taken by the Reserve Bank of India and the new bank was named State Bank of India. The seven other state banks became subsidiaries of the new bank in 1959 when the State Bank of India (Subsidiary Banks) Act, 1959 was passed by the Union government.^[1]

The next major government intervention in banking took place on 19 July 1969 when the Indira government nationalised an additional 14 major banks. The total deposits in the banks nationalised in 1969 amounted to 50 crores. This move increased the presence of nationalised banks in India, with 84% of the total branches coming under government control.^[2]

Before the economic liberalisation

The share of the bank sector held by the public banks continued to grow through the 1980s, and by 1991 public sector banks accounted for 90% of the banking sector. A year later, in March, 1992, the combined total of branches held by public sector banks was 60,646 across India, and deposits accounted for ₹1,10,000 crore. The majority of these banks was profitable, with only one out of the 21 public sector banks reporting a loss.^[3]

Liberalisation in the 2000s

The nationalised banks reported a combined loss of ₹1160 crores. However, the early 2000s saw a reversal of this trend, such that in 2002-03 a profit of ₹7780 crores by the public sector banks: a trend that continued throughout the decade, with a ₹16856 crore profit in 2008–2009.^[3]

Mergers

The consolidation of SBI-associated banks started first by State Bank of India merging its subsidiary State Bank of Saurashtra with itself on 13 August 2008.^[4] Thereafter it merged State Bank of Indore with itself on August 27, 2010.^[5] The remaining subsidiaries, namely the State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore, and Bharatiya Mahila Bank were merged with State Bank of India with effect from 1 April 2017.

Vijaya Bank and Dena Bank were merged into Bank of Baroda in 2018.^[6]
IDBI Bank was categorised as a private bank with effect from January 2019 on account of LIC acquiring the shares from GoI.^[7]

On 30 August 2019, Minister of Finance Nirmala Sitharaman announced the government's plan for further consolidation of public sector banks. The mergers took effect from 1 April 2020.^[8]