3 Charts Explain, Banks' Performance May Be Impacted By Govt Ownership

Public sector banks are simply poor performers when compared to their private sector peers.

As the last of the third quarter results trickle in, banks are in the limelight. The big boys of public sector banking are all reeling under bad loans, and the contrast between the performance of public sector banks and their private sector peers could not be starker.

Here is a comparison of three public sector banks (PSB’s) with similarly placed private sector ones. On the public sector side, one has taken the three biggest banks, State Bank of India (SBI), Punjab National Bank (PNB) and Bank of Baroda (BoB) and compared them with their respective private sector peers: ICICI, HDFC and Axis Bank. First to confirm that as per assets owned their sizes are similar:–

But the profits they made in the third quarter of this financial year is as per their ownership pattern. So, SBI in spite of being a market leader and being four times as large as ICICI Bank, makes one-third the profit. That’s why it needs to turn to the public exchequer again and again while ICICI grows its balance sheet by re-investing its profits.

But the biggest difference is related to what bankers say about the health of the banking sector and by extension the entire macro-economy. The burden of non-performing assets (NPAs) at Public Sector Banks is much higher.

The simple conclusion is that the ownership of banks does matter to their performance. The sooner the Modi government start privatising some of them, the better. At the very least, PSU banks need managerial autonomy in the immediate future so that they can pull themselves up by the bootstraps.