Public sector banks in India have been gradually moving towards the market oriented activities and the trend reflects in its profitability too. The increased competition has changed the banking sector significantly in recent years. 

The Indian Banking sector is a robust segment of the Indian economy. The sector’s strong performance has helped the economy in gaining higher growth rates. With the liberalization most of Indian Banks, both public and private sector, have experienced strong balance sheet growth in an environment of operational flexibility. There is a much more flexibility and operational freedom attained by Banks. As a result, the financial health of banks has improved significantly, both in terms of capital adequacy and asset quality. With enhanced guidelines and regulations with international standards financial institutions in India helped to function with an eye to the profit. Increased competitiveness and productivity gains have also been enabled by proactive technological deepening and flexible human resource management.  The concept of Social banking has percolated down the grass root level and this can be considered as a major gain of Indian Financial sector reform. Banks have succeeded in maintaining the wide reach of the banking system and directing credit towards important but disadvantaged sectors of society. The overall capital position of commercial banks has witnessed a marked improvement during the reform period .In the year 2007, all 81 scheduled commercial banks operating in India maintained CRAR at or above 9 per cent relative to the Basel I norm of 8 per cent.

Despite the fact that the public sector banks which were considered as the brainchild of the nationalization of Indian Banking sector in the 1970’s, has come down significantly , the public sector banks seems to have adopted to the new challenges of competition. This is reflected in their increased share in the overall profit of the banking sector.  Similarly, Indian private sector banks, particularly new private sector banks, also improved their income and asset size since the mid-1990s. Some of the estimates show that In terms of branch expansion, the compound growth rate of private sector banks over the period 2002-07 was almost three times that of all scheduled commercial banks and more than four times that of public sector banks. Four banks namely, Centurion Bank of Punjab, HDFC Bank, ICICI Bank and UTI/Axis bank have experienced rapid branch expansion in the range of 16-46 per cent per annum in terms of compound growth rates.  The Banks are increasingly going for technological upgradation and this has improved the efficiency in a big way. The private sector banks have recorded a compound growth of 24 per cent per annum in their staff, public sector banks have witnessed a decline in the staff strength  over the same period reflecting, restructuring facilitated by greater use of technology and computerization. In terms of growth of capital and reserves and surplus, the new private sector banks experienced annual growth in the range of 30-68 per cent, while deposits and advances have increased by 32-51 per cent and 39-71 per cent, respectively. Net profits recorded a compound annual growth of 27-36 per cent. In terms of all these parameters, private sector banks grew much faster than the existing private sector banks, as might be expected.

On the liability side, deposits continue to account for about 80 per cent of the total liabilities while on the asset side, the shares of loans and advances and investments have seen marked cycles, reflecting banks’ portfolio preferences as well as growth cycles in the economy.  In this regard, while the share of loans and advances declined in the second half of 1990s on account of the industrial slowdown as well as tightening of prudential norms, banks’ credit portfolio has witnessed sharp growth in the period 2003-07.