Evaluating key financials of public versus private sector banks in India: An investment perspective

Abstract

India's banking sector, with its mix of public and private banks, presents diverse opportunities from an investment perspective. The relative performance of public and private sector banks is a crucial consideration when optimizing investment allocation strategies. Much academic debate has centered around the comparative performance of the public versus private sector, with conflicting findings. This study aims to analyze the financial performance of public versus private banks in India from a comparative investment perspective. To analyze the financial performance of public and private banks in India from an investment perspective, the Net Interest Margin ratio, Gross Non-Performing asset ratio, Net Non-Performing asset ratio, Current Account Savings Account (CASA) ratio, and total deposit over ten years from 2014-2023 are employed. The findings of the study state that the Net Interest Margin range of private sector banks extends from 6.06 percent to 2.76 percent, while the range of public banks begins at 2.66 percent and goes as low as 2.06 percent. The gross and net non-performing asset ratios witness higher consistency in asset quality and better risk management in the private sector. However, public sector banks, led by the State Bank of India, maintain dominance in total deposits. While both sectors perform on par in the Current Account Savings Account ratio analysis, the hold of the public sector, especially the State Bank of India, in terms of total deposits, is indisputable. The study concludes that private sector banks demonstrate superior efficiency to public sector banks in India, particularly in profitability, risk management, and asset quality.