Evolution of Strategic Groups amongst Public Sector Banks in India

Abstract

As a result of reforms, competition has led to the expansion of banking markets. With the entry of new private and foreign banks, the competition has affected the conduct of public sector banks. Our objective is to determine whether conduct of public sector reveals that there are strategic groups amongst Public Sector Banks. We have estimated the growth rates of the PSBs as a sector, as well as, two strategic groups, viz., SBI Group and Nationalised banks. Using paired t-test on the data for 1992 and 2016, we have compared the conduct of the two strategic groups, for four conduct variables. All four conduct variables, namely, advertising expenditure, operating expenditure, diversification, and investment in government securities show the presence of strategic groups amongst public sector banks. The paper also establishes that strategic groups are a part of conduct, not structure. It is well established through a set of t-test that in the case of public sector banks, strategic groups, to begin with, did not exist. However, with the emergence of competition, public sector banks chose to polarize as to distinct strategic groups through a process of dynamic formation of such groups namely, SBI group and Nationalised group. We establish through this paper that evolution of strategic groups amongst public sector banks have taken place over the time period.