Public Sector Banks in India, List, Types, Structure, Functions

Public Sector Banks (PSBs) in India are financial institutions where the majority stake (51% or more) is held by the Government of India. They form the backbone of the Indian banking sector, catering to millions of customers while playing a crucial role in financial inclusion, economic growth, and policy implementation. PSBs are pivotal in mobilizing savings, providing credit to key sectors such as agriculture and industry, and implementing government schemes like PMJDY and Mudra Yojana.

Public Sector Banks in India

PSBs operate under government ownership and regulatory supervision of the Reserve Bank of India (RBI). As of 2025, India has 12 major PSBs, including State Bank of India (SBI), Bank of Baroda (BoB), Punjab National Bank (PNB), Canara Bank, and Union Bank of India. These banks provide a wide range of services including retail banking, corporate lending, trade finance, and digital banking. Their presence extends across urban and rural India, contributing to inclusive growth.

Public Sector Banks in India Historical Background

Public Sector Banks in India have evolved over more than a century, shaping the country’s banking landscape.

• Pre-Independence Era (Before 1947): Banking was dominated by private and foreign banks with limited reach, primarily serving urban elites and trade sectors.
• Nationalization of Banks (1969 & 1980): The Government of India nationalized 14 major banks in 1969 and 6 more in 1980 to ensure social and economic equity.
• Formation of State Bank Group: The State Bank of India and its associates were consolidated to provide wider access to banking services.
• Regional Rural Banks (1975): Established to extend banking services to rural areas, small farmers, and underbanked populations.
• Post-Liberalization Reforms (1991 onwards): Focus shifted to improving efficiency, profitability, and technology adoption while retaining social obligations.
• Merger and Consolidation (2017-2020): Several PSBs, including Bank of Baroda, Vijaya Bank, and Dena Bank, were merged to strengthen financial stability.

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Public Sector Banks in India Classification

Public Sector Banks in India can be broadly classified into two categories based on ownership and operational structure:

1. Nationalized Banks

These banks were nationalized by the Government of India to align the banking sector with national priorities. Notable nationalized banks include:

• State Bank of India (SBI): Established in 1955, SBI is the largest public sector bank in India, with over 22,000 branches nationwide and a market capitalization of approximately ₹6.67 lakh crore as of 2025. In 2017, the Government of India merged five associate banks with SBI, making it the largest banking conglomerate in the country.
• Punjab National Bank (PNB): Founded in 1894, PNB has a significant presence with over 10,000 branches and a market capitalization of around ₹1.14 lakh crore.
• Bank of Baroda: Established in 1908, BoB operates more than 8,000 branches and holds a market capitalization of approximately ₹1.13 lakh crore.

As of  today, there are 12 Nationalised Banks in India:

2. Regional Rural Banks (RRBs)

RRBs are jointly owned by the Government of India, sponsor PSBs, and state governments. They focus on providing credit and other facilities to the rural and agricultural sectors. As of 2025, there are 28 RRBs operating in India.

Public Sector Banks in India Structure

The organizational structure of Public Sector Banks in India is hierarchical and functionally integrated to ensure efficient operations and service delivery:

• Board of Directors: Governs strategic decisions, policy formulation, and risk management. The Chairman & Managing Director (CMD) leads day-to-day operations.

• Head Office: Oversees operations across the country, ensuring regulatory compliance and implementation of key policies.

• Zonal/ Regional Offices: Supervise clusters of branches and coordinate with state-level authorities for effective service delivery.

• Branches: Provide customer-facing services, including deposits, loans, and remittances, with a significant presence in both urban and rural areas.

• Specialized Divisions: Include treasury, corporate banking, rural banking, digital banking, and recovery departments, catering to specific customer needs.

Public Sector Banks in India Functions

Public Sector Banks in India perform multiple roles vital to the country’s economic development:

• Financial Intermediation: Mobilizing deposits and providing credit to various sectors, including agriculture, industry, and services.

• Government Schemes Implementation: Executing initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY), Mudra Yojana, and Atmanirbhar Bharat loans, aimed at financial inclusion and economic empowerment.

• Trade Finance: Supporting import-export businesses through letters of credit, foreign exchange services, and trade facilitation.

• Rural and Priority Sector Lending: Fulfilling 40% Priority Sector Lending (PSL) targets, as mandated by the Reserve Bank of India (RBI), with a focus on agriculture, micro, small, and medium enterprises (MSMEs), and housing.

• Digital Banking: Expanding mobile and internet banking services, enabling financial inclusion and convenience for customers.

Public Sector Banks in India Regulation

Public Sector Banks in India operate under a dual regulatory framework:

• Reserve Bank of India (RBI): Regulates licensing, liquidity ratios, capital adequacy, and risk management, ensuring the stability and soundness of the banking system.

• Ministry of Finance (Government of India): Oversees ownership, policy directions, recapitalization, and strategic decisions, aligning the banking sector with national economic goals.

• Banking Regulation Act, 1949: Provides the legal framework for governance, auditing, and regulatory compliance, ensuring transparency and accountability in banking operations.

Public Sector Banks in India Significance

Public Sector Banks play a crucial role in India’s banking ecosystem:

• Nation-building Role: PSBs contribute to socio-economic development, financial literacy, and policy implementation.

• Trust and Reliability: Government backing instills confidence in depositors and businesses, ensuring stability in the financial system.

• Inclusive Growth: Serving rural and unbanked populations, PSBs ensure equitable access to finance, promoting social equity.

• Economic Stability: PSBs act as stabilizers in economic crises by extending credit and liquidity support, mitigating systemic risks.

Public Sector Bank Merger in India

Public Sector Banks in India have undergone major mergers to strengthen financial stability, reduce redundancies, and improve efficiency. 10 PSBs were merged into 4, reducing the number from 27 to 12 between 2017 and 2020

• • Objective of Mergers: Mergers aim to create fewer but stronger banks with larger balance sheets, better capital adequacy, and wider reach.
  • 2017 Mergers: The consolidation started on April 1, 2017, when State Bank of India (SBI) with its five associate banks (State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore) and Bharatiya Mahila Bank were merged into SBI. 
  • 2019 Mergers: Dena Bank and Vijaya Bank were merged with the Bank of Baroda on April 1, 2019. 
  • 2020 Mergers: On August 30, 2019, Finance Minister Nirmala Sitharaman announced a plan to merge 10 PSBs into four larger entities, with the mergers taking effect on April 1, 2020. The consolidations were as follows: 
    • Punjab National Bank absorbed Oriental Bank of Commerce and United Bank of India.
    • Canara Bank absorbed Syndicate Bank.
    • Union Bank of India absorbed Andhra Bank and Corporation Bank.
    • Indian Bank absorbed Allahabad Bank

• Impact of Mergers:

• • • Increased branch network and customer base.
    • Improved capital base and lending capacity.
    • Enhanced operational efficiency and cost reduction.
    • Strengthened ability to compete with private and foreign banks.

• Challenges Post-Merger: Integration of IT systems, aligning HR policies, and maintaining customer service standards remain key hurdles.

Public Sector Banks in India Legal Framework

Public Sector Banks operate under a robust legal and policy framework:

• Banking Regulation Act, 1949: Governs licensing, governance, and capital adequacy, ensuring the soundness of the banking system.

• State Bank of India Act, 1955: Governs SBI’s operations as India’s largest PSB, providing a legal framework for its functioning.

• Companies Act, 2013: Applicable for corporate governance, reporting, and audit compliance, ensuring transparency and accountability.

• Government Policies:

1. 1. • Pradhan Mantri Jan Dhan Yojana (PMJDY): Aimed at financial inclusion, providing banking access to all households.
      • Mudra Yojana: Supporting micro-enterprises with affordable credit.
      • Atmanirbhar Bharat Package: Providing recapitalization and lending boost to PSBs.

• RBI Guidelines: Capital to risk-weighted assets ratio (CRAR), priority sector lending, and NPA classification, ensuring prudent banking practices.

Public Sector Banks in India Impacts

Public Sector Banks have had a significant impact on India’s socio-economic development:

1. Economic Impact

• PSBs finance key sectors, including agriculture, MSMEs, and infrastructure, directly supporting India’s GDP growth.
• Provide affordable credit to rural households, small businesses, and emerging entrepreneurs, fostering inclusive economic development.

2. Financial Inclusion

• Through PMJDY, PSBs have opened over 45 crore accounts by 2025, providing banking access to marginalized communities.
• Regional Rural Banks and cooperative branches complement their rural outreach, ensuring comprehensive financial inclusion.

3. Technological Advancement

• Integration of internet banking, mobile banking, and UPI services has modernized banking services across India.
• Adoption of Artificial Intelligence (AI) and Machine Learning (ML) for credit risk assessment and customer service automation.

4. Employment Generation

• PSBs employ over lakhs of people, creating direct and indirect job opportunities in urban and rural areas.
• Initiatives like Pradhan Mantri Kaushal Vikas Yojana (PMKVY) have enhanced skill development and employability.

Public Sector Banks in India Challenges

Public Sector Banks in India face structural, operational, and financial challenges that require strategic reforms for sustainable growth.

Challenges:

• Non-Performing Assets (NPAs): Gross NPAs of PSBs stood at 6.9% in FY2023, impacting profitability and capital adequacy.
• Capital Adequacy Requirements: Banks require continuous capital infusion from the government to meet Basel III norms and maintain risk-weighted assets.
• Operational Inefficiency: Legacy systems, overstaffing, and bureaucratic procedures hinder swift decision-making and digital adoption.
• Technological Upgradation: Need for enhanced digital banking infrastructure, cybersecurity measures, and AI-powered customer services.
• Competition: Increasing competition from private banks and fintech firms challenges PSBs’ market share.

Way Forward:

• Consolidation and Mergers: Strategic mergers to create larger, financially sound entities capable of managing risk and improving efficiency.
• Technology and Digital Transformation: Investment in core banking solutions, UPI, mobile banking, and AI-driven analytics to improve customer experience.
• NPA Management and Recovery: Strengthen Insolvency and Bankruptcy Code (IBC) processes, implement stricter credit appraisal, and proactive recovery mechanisms.
• Human Resource Reforms: Skill development, performance-linked incentives, and reducing bureaucratic delays to enhance productivity.
• Financial Inclusion and Rural Outreach: Expanding services in rural and semi-urban areas through Regional Rural Banks (RRBs) and branch modernization.
• Sustainability Focus: Encourage green banking initiatives, digital transactions, and eco-friendly practices across branches.

Public Sector Banks in India UPSC

1. Consolidation Trend: Several banks have merged to enhance financial strength, such as the merger of Bank of Baroda, Dena Bank, and Vijaya Bank.
2. Digital Initiatives: UPI adoption, mobile banking apps, and digital lending platforms are rapidly expanding, with India handling approximately 85% of its digital transactions through UPI as of 2025.
3. Government Recapitalization: The government infused ₹2.1 lakh crore in 2023-24 to strengthen PSB balance sheets, enhancing their lending capacity.
4. Priority Sector Lending Enhancement: PSBs consistently achieving PSL targets above 40%, particularly to agriculture and MSME sectors, promoting inclusive growth.