Public Sector Banks (PSBs) in India

About Public Sector Banks

Public Sector Banks (PSBs) are government-owned commercial banks in which the Government of India holds more than 51% ownership. They operate under the regulatory supervision of the Reserve Bank of India (RBI) and play a crucial role in financial inclusion, credit delivery, savings mobilisation and implementation of government welfare schemes.

Major Functions of PSBs

PSBs perform development-oriented banking by supporting priority sector lending, agriculture, MSMEs, education, housing and social welfare programmes in addition to their commercial objectives.

They are also important channels for implementing government programmes such as PM Jan Dhan Yojana, PM Mudra Yojana, PM Vishwakarma and Direct Benefit Transfer (DBT), thereby strengthening financial inclusion.

During periods of economic slowdown or financial stress, PSBs act as economic stabilisers by maintaining credit flow to productive sectors and supporting economic activity and employment generation.

Historical Evolution of PSBs

Early Development

Several institutions that later became major PSBs were established during the late 19th and early 20th centuries to meet the banking requirements of trade, agriculture and domestic economic activity.

State Bank of India

The Imperial Bank of India, established in 1921, was transformed into the State Bank of India (SBI) in 1955, creating the country's largest government-owned commercial bank.

Bank Nationalisation, 1969

In 1969, the government nationalised 14 major commercial banks to expand banking services, improve rural credit availability and strengthen financial inclusion.

Second Phase of Nationalisation, 1980

In 1980, another six commercial banks were nationalised, further increasing government participation and expanding institutional banking in underserved areas.

Post-1991 Banking Reforms

After the 1991 economic reforms, PSBs faced greater competition from private sector banks. This encouraged them to modernise their technology, governance, operational efficiency and customer services.

12 Public Sector Banks in India

India currently has 12 Public Sector Banks.

State Bank of India (SBI) is headquartered in Mumbai, Maharashtra and is India's largest commercial bank. It originated from the Imperial Bank of India and became SBI in 1955.

Punjab National Bank (PNB) is headquartered in New Delhi and was founded in 1894. Its position was strengthened through the 2020 banking consolidation.

Bank of Baroda (BoB) is headquartered in Vadodara, Gujarat and was established in 1908. It has a significant domestic and international presence.

Canara Bank is headquartered in Bengaluru, Karnataka and was founded in 1906. Its position was strengthened following the merger of Syndicate Bank in 2020.

Union Bank of India is headquartered in Mumbai, Maharashtra and was established in 1919. Its scale increased following the merger of Andhra Bank and Corporation Bank.

Indian Bank is headquartered in Chennai, Tamil Nadu and was founded in 1907. It expanded significantly after the merger with Allahabad Bank in 2020.

Bank of India is headquartered in Mumbai, Maharashtra and was established in 1906. It has a substantial domestic network along with an international presence.

Central Bank of India is headquartered in Mumbai, Maharashtra and was founded in 1911. It is among India's oldest public sector commercial banks.

Indian Overseas Bank is headquartered in Chennai, Tamil Nadu and was established in 1937, with particular expertise in international banking.

UCO Bank is headquartered in Kolkata, West Bengal and was established in 1943, with a strong presence in eastern India.

Bank of Maharashtra is headquartered in Pune, Maharashtra and was founded in 1935, serving the retail, agriculture and industrial sectors.

Punjab & Sind Bank is headquartered in New Delhi and was established in 1908, with emphasis on financial inclusion and priority sector lending.

PSB Consolidation and Mergers

Mega Bank Consolidation, 2020

The 2020 bank consolidation was one of the most significant reforms aimed at creating larger, stronger and more competitive PSBs. The Union Cabinet approved the merger of 10 PSBs into four larger entities, effective from 1 April 2020.

Oriental Bank of Commerce and United Bank of India were merged with Punjab National Bank, while Syndicate Bank was merged with Canara Bank.

Andhra Bank and Corporation Bank were merged with Union Bank of India, while Allahabad Bank was merged with Indian Bank.

The consolidation created larger banking entities, generating economies of scale, greater lending capacity, improved technology adoption and stronger risk-management capabilities. It also strengthened PSBs' ability to finance large infrastructure and industrial projects.

Recent Performance: FY 2025–26

PSBs recorded a strong financial performance during FY 2025–26, supported by robust credit growth, improved profitability and better asset quality. Their aggregate business reached ₹283.3 lakh crore as of 31 March 2026, representing 12.8% annual growth. Deposits grew by 10.6%, while gross advances increased by 15.7%.

Credit growth remained strong across key sectors, with retail advances growing 18.1%, agriculture advances 15.5% and MSME advances 18.2%. This highlights the continuing role of PSBs in productive credit delivery and financial inclusion.

Improvement in Asset Quality

PSBs recorded a major improvement in asset quality, with Gross NPA falling to 1.93% and Net NPA declining to 0.39% by 31 March 2026. The provisioning coverage ratio remained above 90% across every PSB, while the slippage ratio declined to 0.7%. Recoveries, including written-off accounts, reached ₹86,971 crore.

Profitability and Capital Adequacy

Aggregate operating profit reached ₹3.21 lakh crore, while net profit increased by 11.1% to ₹1.98 lakh crore, marking the fourth consecutive year of overall profitability.

The aggregate Capital to Risk-Weighted Assets Ratio (CRAR) improved to 16.6%, supported by ₹50,551 crore in capital raising, remaining well above the regulatory requirement of 11.5%.

Digital Transformation

PSBs are increasingly adopting paperless lending, e-KYC, digital documentation and Straight Through Processing (STP). Integration with government digital platforms and improvements in cybersecurity and operational efficiency are helping transform PSBs into more citizen-centric institutions.

The “आपकी पूँजी, आपका अधिकार (Your Money, Your Right)” campaign helped return more than ₹6,800 crore of unclaimed financial assets to nearly 29 lakh rightful claimants, highlighting the role of PSBs in improving financial asset recovery and citizen-centric banking.

Major Challenges

Stressed Assets

Although asset quality has improved substantially, PSBs need continuous monitoring and prudent lending practices to prevent the re-emergence of stressed assets.

Competition from Private Banks

Private sector banks continue to have advantages in innovation, customer experience and digital services, requiring PSBs to accelerate technological modernisation.

Cybersecurity

Rapid growth in digital banking has increased exposure to cyber threats, making cyber resilience and operational risk management increasingly important.

Operational Efficiency

PSBs need continuous improvements in cost management, productivity and governance. The cost-to-income ratio improved to 49.67% in FY 2025–26, but further efficiency gains remain important.

Global Economic Uncertainties

Geopolitical developments and disruptions in regions such as the Middle East can affect financial stability and require PSBs to maintain adequate risk preparedness.

Customer Service

Improving grievance redressal, responsible digital lending, transparency and financial literacy remains essential for maintaining public confidence in PSBs.

Way Forward

The future of PSBs should focus on strengthening governance, digital capabilities, cybersecurity and customer-centric banking while preserving their developmental role.

Improved risk management and prudent lending are necessary to sustain the gains in asset quality. At the same time, PSBs need to leverage technology and data-driven banking to compete effectively with private sector banks.

The continued strengthening of financial inclusion, MSME and agricultural credit, digital banking and welfare-linked financial services will allow PSBs to remain important instruments of inclusive economic growth.