Summary:

A comparison between the performances of public sector and private sector banks reveals the greater role of the former in promoting financial inclusion in India. Using the PMJDY scheme, we find that more accounts have been opened with public sector banks than private banks. Further, the average growth rate of deposits is over 33% in public banks and 23.6% in its private counterparts. This gap in performance is likely due to the limited presence of private banks in rural areas, where the majority of the unbanked population of India resides.

Highlights:

• Envisaging universal access to banking facilities and other financial services, PMJDY entitled every adult to have a no-frills bank account. These Jan Dhan accounts could be opened with any private or public sector banks. The bulk of these accounts were opened in public sector banks, and this trend has continued to date. By August 2023, public sector and private sector banks had 391.6 million and 14.2 million Jan Dhan accounts, respectively. The average growth rate of bank accounts (between 2015 and 2023) in public sector and regional rural banks is over 14%, while that of private sector banks is 9.5%.
• Even as we zoom into the deposits, total deposits in public sector bank accounts account for more than ₹ 150,000 crores. In comparison, private sector banks’ deposits stand at a modest ₹ 5729 crores (as of August 2023). The average growth rate of bank deposits (between 2015 and 2023) in public sector and regional rural banks is over 33%, while that of private sector banks is 23.6%.
• There is a clear gap between the performances of public and private sector banks. One of the reasons behind this gap could be that private banks are less likely to expand into financially excluded areas (where the majority of the unbanked population of India resides) than public banks.^[1] This is because presence in such areas may be economically unviable for private enterprises.

Article By GUPTA, Shubhangi

Graphic By GE, Yixuan

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[1] Agarwala N, Maity S, Sahu TN. Efficiency of Indian banks in fostering financial inclusion: an emerging economy perspective. J Financ Serv Mark. 2023 Jan 6:1–13. doi: 10.1057/s41264-022-00203-7. Epub ahead of print. PMCID: PMC9817463.