Volume 5 Special Issue November 2022

Self-Sufficiency through Development of Banking Market of Public Sector Banks in India

Dr. Sonia Kaushik, AssociateProfessor,Department of Commerce,Bharati College,University of Delhi

Prof. K. V. Bhanu Murthy, Former Dean Faculty of Commerce and Business,Delhi School of Economics,University of Delhi, Currently Professor, Delhi Technological University

Prof. Amit Kumar Singh, Professor, Department of Commerce,Delhi School of Economics,University of Delhi

Dr. Roopa Johri, AssociateProfessor,Department of Commerce,Bharati College,University of Delhi 

DOI:

Banking is the backbone of economic development in India. The growth of banking is the most reliable  source  of  self-sufficiency.  The  private  banks  and  foreign  banks  enhances  the dependency  on  promoters  and  foreign  country  respectively  but  public sector  banks  are  the most dependable as far as self-sufficiency is concerned. Unlike the other two types, PSBs have dual objective of profitability and maintaining liquidity. Also, PSBs are the main source of priority sector lending in India. PSBs accept savings from household sector and channelise these deposits into loans and advances and provide it to industries (short-term, medium-term, and  long-term  loans),  household  sector  (e.g.  Housing  loans)  and  also,  invest  in  other industries and companies. It is clear that PSBs leads to economic development by promoting self-sufficiency through mobilising deposits into loans and advances. In banking economics, the market structure is measured in terms of deposits plus advances. The  structure  of  banking  market  refers  to  the  study  of  nature  of  banking.  Hence,  market structure  is  defined  in  terms  of  nature  of  the  market  which  could  be  competitive  or monopolistic. A monopolistic market restricts the market size whereas a competitive market leads to the expansion of the market.  Using the Structure-Conduct-Performance Approach, we  attempt  to  analyse  various  aspects  related  to  structure  of  PSBs.  In  the  industrial economics,  market  structure  can  be  studied  through  three  elements  namely,  product differentiation, market concentration, and advertisement expenditure.In the present paper, our objective is to analyse the market development of PSBs which are main  source  of  self-sufficiency.  We  want  to  examine  the  nature  of  market  structure  to  see whether it is a growing market; to see whether there is competition in the market in terms of rivalry. Here, market share is measured in terms of size which has been taken as the sum of deposit  and  advances  because  these  are  two  core  banking  activities  which  defines  banking business. Product differentiation is measured as the non-interest income in proportion to total income but advertising expense is taken in absolute terms (as a structure variable) because if it is taken in proportion to total operational expenditure, then it becomes a conduct variable because in that case it would show changes in one variable correspond to the change in the conduct of banks.We have used Herfindahl’s measure of concentration to measure competition in the public sector  banking  industry.  In  order  to  capture  inter-bank  competition  and  rivalry,  all  public sector banks are divided into two groups; Nationalized group and the SBI group. Murthy’s Index of Rank Dominance is used to express a degree of dominance of an ordinal measure such as rank. The Relative Index of Rank Dominance is used to establish the close rivalry that existed amongst PSBs. Semi-growth log equations are used for analysing the trends in market share, diversification, and advertising expenses. We have used growth rates to examine the growth insize is not homogenous across strategic groups in PSBs. In one of research paper (Sonia,  2017),  the  evolution  of  strategic  groups  was  examined  and  found  that  there  are strategic  groups  amongst  public  sector  banks  in  India.  So,  here  in  this  paper,  PSBs  areexamined in terms of strategic groups. It is encouraging to see that the overall impact of liberalization has resulted in growth of size of banks; healthy rivalry and competition. The growth rate of market size has been statistically significant  in  both SBI  group,  Nationalized  Banks  group.  The  Murthy’s  Index  of  Rank Dominance  has  given  exciting  results.  SBI  has  been  on  first  place  in  each  year.  While  the relative index of rank dominance of other top four banks is very close to that of state bank of India.The Relative Index of Rank Dominance shows close rivalry amongst four other banks (Punjab National Bank, Bank of Baroda, Bank of India and Canara Bank). Also, there is no major change in the relative index of remaining 20 banks. The overall result shows that there is competition within the public sector banks in terms of strategic groups.

Keywords:

Banking, Household, Household savings, Market structure, Advertising, Product-differentiation

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