INDIAN SCHOOL OF MINES (ISM)

DHANBAD 826001

ASSIGNMENT ON

COMPARATIVE ANALYSIS between the trends of managerial economics OF A PUBLIC SECTOR (State Bank of bikaner and jaipur) enterprise AND A PRIVATE SECTOR (centurion bank) enterprise OPERATING IN INDIAN ECONOMY

Submitted by:
Sanchit Agarwal M.Sc. Integrated Mathematics and Computing Dept. of Applied Mathematics Roll No: 2008JE0207

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ACKNOWLEDGEME NT
The achievement, the reward, the pleasure, the satisfaction, the appreciation and the construction of my project cannot be thought of without the few who apart from their regular schedule shared their valuable time for me. I would like to express my gratitude to Dr. P. K. Chakraborty without whose motivation, encouragement and enthusiasm, the project would have lost all its appreciation. I highly appreciate the consent help given by the professors of Indian School of Mines, Dhanbad and thank them for the same. I would also like to thank The Librarian, Central Library of ISM with whose support I could easily get the books and materials required to complete this project. I would also like to thank all my friends, my colleagues and all those persons who provided me feedback and help regarding this project. Last but certainly not the least; I thank my parents for giving me unflinching support throughout my project. Their blessings and love ablaze me to reach my goal. They stood rock solid through ups and downs all through the project period.

Signature
(SANCHIT AGARWAL)

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PREFACE
The human society around the world, over a period of time, has established greater contact, but the pace has increased rapidly since the mid 1980s.The term globalization means international integration. It includes an array of social, political and economic changes. Unimaginable progress in modes of communications, transportation and computer technology have given the process a new lease of life. The world is more interdependent now than ever before .Multinational companies manufacture products across many countries and sell to consumers across the globe. Money, technology and raw materials have broken the International barriers. Not only products and finances, but also ideas and cultures have breached the national boundaries. Laws, economies and social movements have become international in nature and not only the Globalization of the Economy but also the Globalization of Politics, Culture and Law is the order of the day. The formation of General Agreement on Tariffs and Trade (GATT), International Monetary Fund and the concept of free trade has boosted globalization.

Globalization in India
In early 1990s the Indian economy had witnessed dramatic policy changes. The idea behind the new economic model known as Liberalization, Privatization and Globalization in India (LPG), was to make the Indian economy one of the fastest growing economies in the world. An array of reforms was initiated with regard to industrial, trade and social sector to make the economy more competitive. The economic changes initiated have had a dramatic effect on the overall growth of the economy. It also heralded the integration of the Indian economy into the global economy. The Indian economy was in major crisis in 1991 when
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foreign currency reserves went down to $1 billion and inflation was as high as 17%. Fiscal deficit was also high and NRI's were not interested in investing in India. Then the following measures were taken to liberalize and globalize the economy.

Steps Taken to Globalize Indian Economy Some of the steps taken to liberalize and globalize our economy were: 1. Devaluation: To solve the balance of payment problem Indian currency were devaluated by 18 to 19%. 2. Disinvestment: To make the LPG model smooth many of the public sectors were sold to the private sector. 3. Allowing Foreign Direct Investment (FDI): FDI was allowed in a wide range of sectors such as Insurance (26%), defense industries (26%) etc. 4. NRI Scheme: The facilities which were available to foreign investors were also given to NRI's For the purpose of Comparative study I have chosen by ate Bank of Bikaner and Jaipur and Centurion bank which in due course merged with bank of Punjab and lord Krishna bank. Eventually was bought by HDFC bank in 2008

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CONTENTS
1. An overview of Indian banking sector 2. SBBJ an overview 3. Productive analysis of SBBJ 4. Centurion bank an overview 5. Productive analysis of Centurion bank 6. Comparative analysis of SBBJ and Centurion bank 8. Promoting productivity in Indian banking sector 9. Overall View of the Effect of Liberalization 10. Bibliography

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An overview of banking sector in India

The major participants of the Indian financial system are the commercial banks, the financial institutions (FIs), encompassing term-lending institutions, investment institutions, specialized financial institutions and the state-level development banks, Non-Bank Financial Companies (NBFCs) and other market intermediaries such as the stock brokers and money-lenders. The commercial banks and certain variants of NBFCs are among the oldest of the market participants. The FIs, on the other hand, are relatively new entities in the financial market place.

Historical perspective
Bank of Hindustan, set up in 1870, was the earliest Indian Bank. Banking in India on modern lines started with the establishment of three presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank carried out limited central banking functions also prior to establishment of RBI. It engaged in all types of commercial banking business except dealing in foreign change. Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was constituted as an apex bank without major government ownership. Banking Regulations Act was passed in 1949. This regulation brought Reserve Bank of India under government control. Under the act, RBI got wide ranging powers for supervision & control of banks. The Act also vested licensing powers & the authority to conduct inspections in RBI. In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile princely states, making them as its 100% subsidiaries. RBI was empowered in 1960, to force compulsory merger of weak banks with the strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July 1969, government nationalized 14 banks having deposits of Rs.50 crores & above. In 1980, government acquired 6 more banks with deposits of more than Rs.200 crores. Nationalization of banks was to make them play the role of catalytic agents for economic Growth. The Narsimham Committee report suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices. The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks.

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Banking Segment in India functions under the umbrella of Reserve Bank of India - the regulatory, central bank. This segment broadly consists of:
1. Commercial 2.

Banks

Co-operative Banks

Commercial Banks The commercial banking structure in India consists of: Scheduled Commercial Banks Unscheduled Banks Scheduled commercial Banks constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (60 of the Act. Some co-operative banks are scheduled commercial banks albeit not all co-operative banks are. Being a part of the second schedule confers some benefits to the bank in terms of access to accommodation by RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulations of RBI. For the purpose of assessment of performance of banks, the Reserve Bank of India categories them as public sector banks, old private sector banks, new private sector banks and foreign banks. This sub sector can broadly be classified into: 1. Public sector 2. Private sector 3. Foreign banks Public sector banks have either the Government of India or Reserve Bank of India as the majority shareholder. This segment comprises of:

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Co-operative Banks There are two main categories of the co-operative banks. (a) Short term lending oriented co-operative Banks - within this category there are three sub categories of banks viz state co-operative banks, District co-operative banks and Primary Agricultural co-operative societies. (b) Long term lending oriented co-operative Banks - within the second category there are land development banks at three levels state level, district level and village level.

The co-operative banking structure in India is divided into following main 5 categories: 1. Primary Urban Co-op Banks 2. Primary Agricultural Credit Societies 3. District Central Co-op Banks 4, State Co-operative Banks 5. Land Development Banks

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What is Productivity?
Productivity is a measure of efficiency with which resources, both human and material, are converted into goods and services at a faster rate of economic growth can be ensured through accelerated production and higher productivity in every branches of economic activity. Human resources, being an important input, their productivity play a significant role in determining the overall economic growth of a nation. Apart from the level of human skills, the quality of raw materials and the technology employed are also responsible for productive human resources. Productivity is quality or state of being productive. It is the concept that guides all the management or production systems and measures its success. It Is the quality that indicates that how labor, capital, materials and energy are utilized? Increase in productivity is the fundamental objective of an organization. A change in the productivity of a systems results from the combined effect of all the factors contributing to the system performance. Its not an anti-inflationary measure. Productivity is not a technique to make worker harder, rather productivity Is an approach that encourages worker to work smarter .however in most industrialized economies productivity agreement are signed from time to time which may increase in wage dependent or increase in output per hour. Thus its quite obvious that productivity is (a measure of output /a measure of input) Thus we get that Productivity =output/input =average productivity Therefore its the ratio of output to input.

Measurement of Productivity

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Productivity is measured basically as: Labour productivity Capital productivity Total factor productivity Labour productivity
The most common measurement of productivity is labour productivity .this productivity is very important in the developing economy. In this measurement of productivity output is defined as total product and only input is labour which is taken into account. Thus we get that

Labour productivity =total product/total labour =average product of labour

Capital productivity
In this productivity measurement output is defined as total product and only input is capital which the manager is considering. Therefore

Capital productivity=total product/total capital employed = average product of capital

Total Productivity or Total Factor Productivity Managers often measure total productivity which is known as total factor productivity measuring both labor and capital resources. In this measurement we get that Total factor productivity = total product /combined input Of labour and capital

STATE BANK OF BIKANER AND JAIPUR (SBBJ)

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About SBBJ
State Bank of Bikaner and Jaipur, a professionally managed Public Sector Bank with a track record of uninterrupted profitability and dividend payment (except one year) since its inception in 1963, came into existence after amalgamation of the erstwhile State Bank of Jaipur with State Bank of Bikaner, as a subsidiary of State Bank of India.

Bank's Vision and Mission

The Bank has codified its ethos, values, culture and aspirations in the following Vision and Mission statements:

Vision :
To be a values driven modern bank aspiring for excellence in customer service, perpetually enhancing shareholders value and contributing to the economic development of society.

Mission:
To continue to be a premier bank of Rajasthan with all India presence, committed to empower its personnel for providing excellent, personalised and quality customer service by adoption of modern technology, achieving sustained and profitable growth in business thereby increasing shareholders value and contributing to the welfare of the society.

HISTORY
State Bank of Bikaner and Jaipur was established in 1963 after amalgamation of erstwhile State Bank of Jaipur (established in 1943) with State Bank of Bikaner (established in 1944) as a subsidiary of State Bank of India. The Bank's main area of operation is in the State of Rajasthan, with presence at all important centres in the country. The Bank has 860 branches spread over the country.

The Bank follows transparent corporate governance policies and has smoothly migrated to Basel II. On the technology front, the Bank migrated all branches to Core Banking Solution
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(CBS) and became among the first few banks in India to offer online banking facility across the country. The Bank has installed 495 ATMs and is part of the State Bank Group networks of ATMs. Internet Banking has been extended to all branches for retail and corporate customers. The Bank has rolled out Business Process Reengineering (BPR) initiatives to improve operational efficiency and better customer service and is committed to offer value added services to its customers. The Bank has been earning profit continuously since its inception and its business has crossed the level of Rs 69,000 crore with a net profit of Rs. 403.45 crore at the end of March, 2009.

PRODUCTIVTY ANALYSIS
In this section we will analyze the some of the important efficiency parameters that relate to how well a bank employs its resources to the existing production possibilities frontier (or in other words ,relative to current best practice)-how an institution simultaneously minimizes costs and maximize revenue ,based on an existing level of production technology. The parameters are:

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1) LABOUR PRODUCTIVITY:
Labour productivity is a partial productivity and it is measured by many factors .Important parameter related to banking sector is amount of deposits mobilized per employee The corresponding data for SBBJ for the last 10 financial years are given below:
Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Business per employee (Rs. In lakhs ) 88.27 91.18 115.70 131.98 151.46 184.97 180.66 183.79 200.38 210.11

From the table above we construct the following line chart, to see the trend of business per employee.
Business Per employee 250 200 150 100 50 0 19992000 20002001 20012002 20022003 20032004 20042005 20052006 20062007 20072008 Business Per employee

Year The data shows that the labour productivity of the bank has an increasing trend. The business per employee has increased from 91.18 lakh year 1999-00 to 210.11lakh in 200708.The rise has been more or less steady. Reason for this may be attributed to the reduction in employees following the computerization of all the branches and also the launch of Voluntary Retirement Scheme (VRS), increased labour participation in management, better communication schemes and incentive schemes

2). CAPITAL PRODUCTIVITY

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Capital productivity is defined as the arithmetic ratio between the amount produced and the amount of capital used in the production total product when the only factor of production that is taken into account is capital. For banks, the product is the business that the bank does in the financial year. The capital productivity analysis shows the trend in the last 5 financial years
Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Capital (Rs. In Crore ) 50 50 50 50 50 50 50 50 50 50 Business(in Crores) 8845 9074 10326 11661 13234 15475 16137 18010 20100 21002 Capital productivity 176.90 181.48 206.52 233.22 264.68 309.5 322.74 360.00 402.00 420.04

From the table above we construct the following line chart, to see the trend of capital productivity
Capital productivity 450 400 350 300 250 200 150 100 50 0 Business per employee

Capital productivity

The data Year shows that the capital productivity of the bank has an increasing trend. The business has increased from 181.48 in the year 1999-00 to 420.04 in 2003-04.The rise has been more or less steady. Reason for this may be attributed to the computerization of all the branches and simplification of transaction process and rationalizing product/services, adopting modern technology for banking operations as ATM, e-banking and many others
19992000 20002001 20012002 20022003 20032004 20042005 20052006 20062007 20072008

3.) TOTAL FACTOR PRODUCTIVITY

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The managers often measure total productivity which is also known as total factor productivity, measuring both labour and capital resources. Thus total factor productivity is the ratio of total product and the combined input of labour and capital. n other words, the total productivity of a firm can be assumed as the ratio between total income and total expenses. The total factor productivity analysis shows the trend in the last 5 financial years.

From the table above we construct the following line chart, to see the trend of total productivity
Total Productivity 1.6 1.4 1.2 1 0.8 Year Total income (Rs. 0.6 ) 0.4 1998-1999 1227 0.2 1999-2000 1336 0 2000-20011999-1506200020012002 2001-2002 200016582001 Total Productiviity

2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

1778 1857 2334 2958 3523 4387

In Crore Total expenditure(in crores) 1179 1216 1401 20042002200320052003 2004 2006 1494 2005 1575 Year 1648 1708 2689 3208 3983

20062007

Total productivity 1.04 1.098 1.074 20072008 1.109 1.128 1.126 1.366 1.100 1.090 1.101

Total Productivity

The graph shows an increasing trend especially after 9/11 attack on world trade center. There is a very good upswing in total productivity during the year 2003-2006 but the bank could not maintain the momentum and was back to previous level after that.

CONCLUSION Finally, we get that SBBJ is one of the best performing public sector banks at the present time. In a present age where public sector if facing stiff competition form spurring private sector banks SBBJ has done fairly well to keep an increasing trend of efficiency. The bank needs to keep up its good work and aim for higher productivity levels.

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CENTURION BANK (of Punjab)

Profile
Centurion Bank, as its very positioning suggests, has an extensive network of branches across India. And each of these branches are harnessed to state of the art technologies to offer unparallel customer service. They go way beyond merely offering our valued customers technology driven solutions. Centurion Bank constantly endeavors to offer customized services that are driven by customer requirements rather than just exhibiting technological prowess. Among Centurion Banks greatest strengths is the fact that it is a professionally managed bank with a globally experienced management team.

History
1994
The company was incorporated on 30 June, 1994 and the certificate of Commencement of Business on July 20. It is promoted as a joint venture between 20th Century Finance Corporation Ltd, and its associates and Keppel Group of Singapore. It has got a network of
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ten branches. The main equity of the Bank was provided by the promoters, 20th Century Finance Corporation Ltd. & its associates and Keppel Bank of Singapore (now Keppel TatLee Bank Ltd.) through Kephinance Investment (Mauritius) Pte. Ltd.

1995
20th Century Finance Corporation Limited has been amalgamated with Centurion Bank Limited. The Bank, set up in a fully computerized environment with ATM facility at every branch and Computer networking between branches can indeed claim to be a `Bank with a difference'. The Bank has introduced, for the first time in the country, the concept of `anywhere banking' which enables to operate the account from any other branch of the Bank.

2005
Boards of Directors of Centurion Bank and Bank of Punjab Ltd on June 29, 2005 approves merger of two banks. The combined bank is now called Centurion Bank of Punjab. Centurion Bank of Punjab is one of the leading new generation private sector banks in India. The bank serves individual consumers, small and medium businesses and large corporations with a full range of financial products and services for investing, lending and advice on financial planning. It holds leadership positions in the two-wheeler loan and commercial vehicle loan segments, is a strong player in foreign exchange services, personal loans, mortgages, education loans and agricultural loans, and credit cards. Additionally the bank offers a full suite of NRI banking products to overseas Indians. The bank also offers its customers an array of wealth management products such as mutual funds and life and general insurance. Centurion Bank of Punjab operates on a strong nationwide franchise of 403 branches and 446 ATMs across 143locations and is supported by over 5,000 employees. In addition to being listed on the major Indian stock exchanges, the Banks shares are also listed on the Luxembourg Stock Exchange. Recently Centurion Bank of Punjab acquired Kochi based Lord Krishna Bank.

2008
HDFC Bank acquired Centurion Bank of Punjab on 23 May; 2008

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PRODUCTIVITY ANALYSIS
In this section we will analyze the some of the important efficiency parameters that relate to how well a bank employs its resources to the existing production possibilities frontier (or in other words, relative to current best practice)-how an institution simultaneously minimizes costs and maximize revenue, based on an existing level of production technology. The parameters are:

1) LABOUR PRODUCTIVITY:
Labour productivity is a partial productivity and it is measured by many factors. Important parameter related to banking sector is amount of deposits mobilized per employee The corresponding data for CENTURION BANK for the last 5 financial years are given below:

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Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Business per employee (Rs. In lakhs ) 885.17 803.81 765.63 535.66 438.99 415.3 438.22 467.16 453.87 430.11

From the table above we construct the following line chart, to see the trend of business per employee
Labour Productivity 1000 900 800 700 600 500 400 300 200 100 0 1998- 19991999 2000 20002001 2001- 20022002 2003 2003- 20042004 2005 20052006 2006- 20072007 2008

Labour Productivity

Labour Productivity

Year

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The data shows that the labour productivity of the bank has decreasing trend. The business has decreased from 803.81 lakh year 1999-00 to 430.11 lakh in 2007-08.The fall has been more or less steady. Reason for this may Lack of labour participation in management, poor communication schemes and incentive schemes lack of motivation to the employees or may be fall into total business of the bank due to increased competition from other major players in the banking sector.

2. CAPITAL PRODUCTIVITY
Capital productivity is defined as the arithmetic ratio between the amount produced and the amount of capital used in the production total product when the only factor of production that is taken into account is capital. For banks, the product is the business that the bank does in the financial year. The capital productivity analysis shows the trend in the last 5 financial years

Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008

Capital(Rs. In Crore ) 152 152 152 152 152 152 152 212 212 212

Business(in crores) 3215 3867 4257 3535 2835 2645 3245 4508 4876 5178

Capital productivity 21.15 25.44 28.00 23.25 18.65 17.40 21.34 21.26 23.00 24.42

From the table above we construct the following line chart, to see the trend of capital productivity;

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Capital Productivity 30 Capital Productivity 25 20 15 10 5 0 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 20071999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year Capital Productivity

It can be seen that after the attack on world trade center this bank has not been able to recover for a long time but after 2003-2004 it has shown a very strong and healthy growth and bounced back to its previous level and perhaps this was the reason it was bought by HDFC group

3. TOTAL FACTOR PRODUCTIVITY

The managers often measure total productivity which is also known as total factor productivity, measuring both labour and capital resources. Thus total factor productivity is the ratio of total product and the combined input of labour and capital. In other words, the total productivity of a firm can be assumed as the ratio between total income and total expenses. The total factor productivity analysis shows the trend in the last 5 financial years.
Year 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 Total income (Rs. In Crore ) 543 532 645 553 451 425 465 560 617 620 Total expenditure(in crores) 392 418 638 647 477 428 430 500 519 600 Total productivity 1.38 1.27 1.01 0.85 0.945 0.99 1.08 1.12 1.18 1.03

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From the table above we construct the following line chart, to see the trend of total productivity;
Total productivity 1.4 1.2 Productivity 1 0.8 0.6 0.4 0.2 0 19992000 20002001 20012002 20022003 20032004 20042005 20052006 20062007 20072008 Total productivity

Year This graph has been showing fairly decreasing trend from 1.27 in the year 1999-00 to 0.99 in the year 2003-2004 with the lowest of 0.85 in the year 2000-01, i.e. the year of attack on WTC but has quickly and consistently moved up after that showing a very good sign .

CONCLUSION
The above analysis of the centurion bank rather shows the deteriorating condition of this bank .There has been a continuous fall in efficiency parameter .It needs a lot of effort on the management side of the bank to improve and back the bank on the right path and survive in the present age of stiff competition

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COMPARATIVE ANALYSIS OF SBBJ AND CENTURION BANK PARTICULARLY AFTER LIBERALISATION IN 1991 1) LABOUR PRODUCTIVITY:

Labour Productivity
1000 Labour Productivity 800 600 400 200 0 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 20071999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year SBBJ centurion bank

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This graph shows that even though labour productivity is falling for centurion bank that too it has been higher than that of SBBJ, this may be due to more no. of employees in SBBJ than required, typical characteristic any public sector company

2).CAPITAL PRODUCTIVITY

Capital productivity
450.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 1998- 1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 20071999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Year Capital Productivity

SBBJ centurion bank

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The graph shows the poor management of centurion bank, this is clearly revealed form the difference in lines of the two. This may be due to the fact that SBBJ has its base established much before than CENTURION BANK so its customer loyalty is more than that of CENTURION BANK and hence there is huge difference between the amounts of business performed by the two banks.

3) TOTAL FACTOR PRODUCTIVITY

Total factor productivity

1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 19981999 19992000 20002001 20012002 20022003 20032004 20042005 20052006 20062007 20072008 Total factor Productivity

SBBJ centurion bank

Year

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Total productivity of the two banks has more or less been the same and this shows that as a whole the two banks has been performing equally well, opposite of the general misconception that private sector fares well than public sector

CONCLUSION
The comparative analysis shows that despite huge differences in labour productivity and capital productivity ,as a whole, the total factor productivity has been nearly equal and hence this shows that in the banking sector these two banks performs equally well. The Programme of disinvestment started in the year 1991 when the government declared the new economic policy or NEP .from the very beginning it was tried to show that disinvestment is good for the country .The three basic reasons that were shown to hold this idea were : 1) Granting resources for the PSUs, so that burden can be lessened. 2) to provide financial support to the PSUs 3) to improve the efficiency of the enterprise These reasons have their own weightage but considering the importance of the PSU in the society the policy of disinvestment is not beyond criticism as we can see the public sector bank has fared well compared to the private sector, centurion bank.

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Various reforms in the financial sector that came with the liberalization can be stated as: 1) The public sector was restricted to perform their social role of priority sector lending. 2) The ides of no more nationalization of the bank is criticized on the basis of the existing vulnerability in the Indian banking section. 3) Reduction of rate of interest, gradual abolition of priority sector lending will indirectly affect the weaker section of the society

PROMOTING PRODUCTIVITY IN BANKS

New private sector banks and foreign banks have been able to achieve high productivity and woo valuable customers from the public sector banks due to their innovative products and better customer service to suit different segment of customers. Better management of Capital, Technology, Human Resource and improved efficiency of operation has delivered high productivity. Although none of these parameters can be considered less important, we shall concentrate on how old private sector banks and PSBs can manage the capital more efficiently to their advantage. Deregulation has opened up opportunities for banks to diversify into new products and services. Many PSBs are now listed companies and the whole reality of shareholders value has now dawned on them. To meet shareholders expectation banks should rationally allocate capital to different product based on some sound principles. To improve capital productivity banks should adopt the following steps: 1. Improving the technology: Application of electronic delivery channel like ATM, phone banking, internet banking etc. The average cost of a branch transaction would be thrice than in ATM 2. Simplifying transaction process.
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3. Continuous product innovation to offer customized products with value added services to customer 4. Highly efficient service to customer in terms of credit appraisal and dispensation. Need to build a good risk assessment mechanism for customer appraisal 5. Highly aggressive marketing and sales strategy along with highly efficient sales team 6. Have proper Risk management, NPA management and asset and liability management system in place 7. Developing an objective pricing strategy to identify unprofitable products and services 8. Manage banks spread in better way through cast discretion in fund mobilization to counter declining interest rate structure 9. Focus on recovering Non-performing asset, as NPAs leads to lower spread. 10. Reduce deposit cost by altering the deposit mix in favor of low cost deposits. 11. Focus on non-priority loans as it improves income via higher interest rate. 12. Develop and market new product s like derivatives swaps and options. Focus on increasing the share of fee-based income. .

OVERALL VIEW OF THE EFFECT OF LIBERALIZATION

Commercial banking has undergone innumerable changes during the past five decades. In the Indian banking also there have been several changes. Indian banking is in the process of completing one full circle. Initially it was in the private sector. It moved to public sector with the nationalization of banks in two stages in 1969 and 1980. Now with the governments decision to reduce its stake in bank from 51 to 33 percent, public sector banking is again moving in direction of partial banking. A close study of history of Indian banking will show that it has moved through two separate and distinct stages. Organized banking in India has its birth in 1770 when bank of

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Hindustan came into being. BY 1947 the number of banks had increased to 94 which had 2700 branches and aggregate deposits of Rs. 928 crore. The stage covering the period from 1985 to 1991 was the CONSOLIDATION PERIOD. During this period several efforts were made to address the weakness and defects needed as a result of speedy expansion. Profitability and Productivity were the areas of focus during this stage. Annual action plans were adopted and implemented by the banks to improve their overall performance. The RBI closely monitored the performance of these banks during this period . The next stage was the period of reforms that commenced in the second half of 1991 .in August NARSIMHA RAO committee was appointed by the government of India to address the problem of Indian banking and to suggest appropriate remedial measures. Based on the recommendations of the committee report provided the blue print for banking reforms in India Reforms implemented for revamping and strengthening the Indian banking included progressive reduction in STATUTORY LIQUIDITY RATIO (SLR) and CASH RESERVE RATIO(CRR), adoption of new norms of asset classification ,income recognition and provisioning ,introduction of capital adequacy norms, grant permissions for entry of additional new players to promote competition ,deregulation of interest rates, establishment of separate board for financial supervision in RBI, setting up of tribunal for recovery of bank dues and enactment of securitization and reconstruction of financial assets and enforcement of security interest act.

RESULTS OF LIBERALIZATION
The scenario that was dominated by nationalized banks is changing; Indian commercial banks have witnessed a rapid growth and spread of private banks, conversion of

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development banks and increasing number of foreign banks. Market share of nationalized banks have reduced. Process of globalization has intensified in Indian economy

BIBLIOGRAPY
Websites www.sbbjbank.com www.hdfcbank.com www.wikipedia.org www.businessmonitor.com/bmo/banking www.bharatbook.com/.../Report-on-IndianBanking-Sector.html

Journals

ICFAI journal August 2009, issue IBA bulletin special issue 2008

Books

Wage productivity in Indian Public Sector Author: - Dr. P.K. Chakrabarti. Investment Decision in Indian Public Sector. Author: - Dr. P.K. Chakrabarti.

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