Introduction
Public Sector Banks (PSBs) form the backbone of India’s banking system. With their vast reach and government backing, PSBs have played a crucial role in financial inclusion, rural development, economic reforms, and socio-economic upliftment.
What are Public Sector Banks?
Public Sector Banks (PSBs) are banks where the majority stake (more than 50%) is held by the Government of India (GoI). These banks are governed by banking regulations and monitored by the Reserve Bank of India (RBI) and the Ministry of Finance.
They were established with the goal of serving the public interest, ensuring equitable access to banking, and fostering rural and priority sector lending.
Key Characteristics of PSBs
| Feature | Description |
|---|---|
| Ownership | Majority owned by the Central Government |
| Objective | Social welfare, financial inclusion, development financing |
| Control | Under RBI and Ministry of Finance |
| Reach | Extensive rural and semi-urban branch network |
| Safety | Considered safer due to government backing |
Types of Public Sector Banks
- Nationalised Banks
- Originally private, later nationalised in 1969 and 1980.
- State Bank of India (SBI) and its Associates
- SBI was created in 1955 after nationalising Imperial Bank of India.
- Regional Rural Banks (RRBs)(Semi-public)
- Jointly owned by the Central Government (50%), State Government (15%), and Sponsoring Bank (35%).
List of Public Sector Banks in India (2025)
As of 2025, there are 12 major Public Sector Banks in India.
| Sl. No. | Bank Name | Headquarter | Year of Establishment |
|---|---|---|---|
| 1 | State Bank of India (SBI) | Mumbai | 1955 |
| 2 | Punjab National Bank (PNB) | New Delhi | 1894 |
| 3 | Bank of Baroda (BoB) | Vadodara | 1908 |
| 4 | Canara Bank | Bengaluru | 1906 |
| 5 | Union Bank of India | Mumbai | 1919 |
| 6 | Indian Bank | Chennai | 1907 |
| 7 | Indian Overseas Bank (IOB) | Chennai | 1937 |
| 8 | Bank of Maharashtra | Pune | 1935 |
| 9 | UCO Bank | Kolkata | 1943 |
| 10 | Bank of India (BoI) | Mumbai | 1906 |
| 11 | Central Bank of India | Mumbai | 1911 |
| 12 | Punjab & Sind Bank | New Delhi | 1908 |
Note: The number of PSBs reduced from 27 to 12 due to mergers and consolidations initiated between 2017–2020.
Functions of Public Sector Banks
- Mobilization of public savings
- Granting of loans and advances
- Priority sector lending (agriculture, MSMEs, education, etc.)
- Promoting financial literacy and inclusion
- Implementing government schemes (PMJDY, PMEGP, Mudra, etc.)
- Providing foreign exchange and trade finance services.
Digital Transformation of PSBs
- In recent years, Public Sector Banks have taken significant strides toward embracing digital banking solutions.
- With the launch of government programs like Digital India, PSBs were encouraged to adopt advanced technology infrastructure, digital customer interfaces, and paperless banking processes.
- Many banks now offer mobile banking apps, internet banking, UPI services, e-KYC, and instant loan approvals through online platforms. Initiatives such as the EASE (Enhanced Access and Service Excellence) reform agenda have helped PSBs streamline services, improve credit monitoring, and enhance customer experience.
- However, the pace of digital adoption in PSBs still lags behind that of private sector banks, largely due to legacy systems, workforce training gaps, and bureaucratic hurdles.
Role of PSBs in Economic Development
| Area | Role of PSBs |
|---|---|
| Financial Inclusion | Opened crores of accounts under Jan Dhan Yojana |
| Agriculture | Offered Kisan Credit Cards and crop loans |
| MSMEs | Credit under CGTMSE and Mudra schemes |
| Infrastructure | Loans to roads, railways, power, and housing |
| Welfare Schemes | Disbursed pensions, DBTs, subsidies efficiently |
| Crisis Management | Played key role during COVID-19 via ECLGS |
Reimagining Governance and Autonomy
- One of the critical areas for reform in PSBs is improving governance standards and ensuring autonomy in decision-making.
- Historically, many lending decisions at PSBs were influenced by external pressures, leading to an accumulation of bad loans.
- Recognizing this, the government introduced steps such as bank boards bureau formation, performance-based incentives for executives, and strategic disinvestment in select cases.
- The idea is to give PSBs greater financial freedom while holding them accountable to high governance standards.
- Experts have suggested corporatizing PSBs, allowing them to operate more like commercial enterprises while still upholding social responsibilities
Major Reforms and Mergers in PSBs
Key Nationalisation Events:
- 1969:
- 14 private banks were nationalised.
- 1980:
- 6 more were nationalised.
Consolidation Phase (2017–2020):
To strengthen their financial positions and improve efficiency, the Government initiated PSB mergers.
| Merged Into | Banks Merged |
|---|---|
| Punjab National Bank | Oriental Bank of Commerce, United Bank of India |
| Canara Bank | Syndicate Bank |
| Union Bank of India | Andhra Bank, Corporation Bank |
| Indian Bank | Allahabad Bank |
| Bank of Baroda | Vijaya Bank, Dena Bank |
Public Sector Banks vs Private Sector Banks
| Feature / Parameter | Public Sector Banks (PSBs) | Private Sector Banks |
|---|---|---|
| Ownership | Majority owned by the Government of India | Owned by private entities or corporates |
| Objective | Social welfare, financial inclusion | Profit maximization and customer service |
| Decision-Making Process | Often bureaucratic and hierarchical | Quicker, business-driven decision-making |
| Loan Approval | Slower due to multiple layers of approval | Faster with digital tools and streamlined processes |
| Customer Service | Improving, but traditionally perceived as poor | High emphasis on customer experience and convenience |
| Technology Adoption | Slower, catching up with reforms (EASE, Core Banking) | Aggressively digital-first, app-based services |
| Branch Network | Extensive rural and semi-urban outreach | Concentrated more in urban and metro areas |
| NPA Levels | Historically higher due to large corporate exposures | Comparatively lower due to stricter credit checks |
| Transparency & Governance | Subject to political and administrative influence | Market-driven, professional governance |
| Safety Perception | Considered safer due to government backing | Depends on financial health and brand image |
| Examples | SBI, PNB, BoB, Canara Bank, Indian Bank | HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra |
Challenges Faced by PSBs
- High NPAs (Non-Performing Assets)
- Operational inefficiencies
- Political interference
- Capital adequacy issues
- Technological lag behind private sector banks
- Poor customer service perceptions
Government Initiatives for PSBs
| Initiative | Objective |
|---|---|
| Recapitalisation Plans | Infuse capital to maintain CRAR |
| Prompt Corrective Action (PCA) | Framework for monitoring stressed banks |
| Indradhanush Plan (2015) | Revamp PSB functioning, governance reforms |
| Banking Reforms Roadmap 2020 | Enhance transparency and performance |
| EASE Reforms (Enhanced Access and Service Excellence) | Improve PSB service delivery and technology adoption |
Future of PSBs in India
- Focus on digital banking and fintech integration
- Likely further consolidation and privatization
- Shift towards performance-linked governance
- Enhanced cybersecurity and IT infrastructure
- Better credit monitoring to reduce NPAs
- Strengthening their role in sustainable and green financing
Conclusion
Public Sector Banks have long been the flag-bearers of inclusive banking in India. Despite the challenges they face, their importance in promoting government schemes, rural financing, and developmental banking cannot be overstated.
As India embraces Digital India and a $5 trillion economy vision, PSBs will need to redefine their strategies, upgrade technology, and focus on customer-centric services to remain relevant and efficient.
FAQs
Q1. How many public sector banks are there in India in 2025?
There are 12 Public Sector Banks as of 2025.
Q2. What is the largest public sector bank in India?
State Bank of India (SBI) is the largest in terms of assets, reach, and customer base.
Q3. What is the difference between PSBs and private banks?
PSBs are majority-owned by the government, while private banks are owned by private entities. PSBs focus more on social banking, while private banks emphasize profit and efficiency.
Q4. Are Public Sector Banks safe?
Yes, PSBs are considered relatively safe due to government ownership and backing.
