Public Sector Banks & RRBs – At the Crossroads of Service and Survival

OPINION PIECE

Public Sector Banks (PSBs) and Regional Rural Banks (RRBs) in India have long stood as pillars of economic stability and social equity. They are not mere commercial entities chasing quarterly profits; they are national institutions tasked with delivering developmental banking to the remotest corners of the country. PSBs are considered as the mirror of the economy. Yet, today, these institutions face a complex crisis of manpower, morale, and mission clarity.

Compared to private banks, PSBs and RRBs are reeling under acute staff shortages. At the close of FY 2024–25, the total business of Public Sector Banks (PSBs) alone stood at ₹251 lakh crore. Collectively, they operate over 1,07,000 branches, 1.2 lakh ATMs, and a large network of Business Correspondent outlets, SBI alone has more than 85,000. The State Bank of India serves around 51 crore account holders, while Regional Rural Banks (RRBs) account for another 35 crore customers. The remaining 11 PSBs together are estimated to serve an additional 50 crore customers. The per-employee customer ratio is heavily skewed, forcing officers to shoulder workloads far beyond sustainable levels. Over the past decade, clerical staff strength in PSBs has declined sharply from 398,801 in 2013 to just 251,908. Today, the average PSB employee is responsible for around 2,000 customers, compared to just 400–500 per employee in private banks. Increasingly, PSBs are relying on outsourced manpower, with over 101,000 contract workers currently on the rolls, SBI alone employing nearly 65,000, indicating a clear move away from permanent staffing. The vacancy figures disclosed in Parliament do not reflect the actual shortfall. A comparison with private banks shows that PSBs operate with barely one-fourth the workforce, underscoring our long-standing demand for urgent, adequate recruitment. In rural and semi-urban branches, a handful of officers manage thousands of customers, government scheme disbursals, compliance work, and regulatory reporting. The human cost of this overburden is tragic, there are increasing reports of workplace depression, health breakdowns and even suicides. The atmosphere in many branches has become toxic, fuelled by unrelenting targets, unrealistic timelines and growing incidents of misbehaviour towards staff from frustrated customers and sometimes even superiors.

From Jan Dhan accounts to PM Kisan Samman Nidhi, from pension disbursements to Mudra loans, PSBs and RRBs execute nearly every flagship welfare programme of the Government. These schemes, while socially necessary, consume huge manpower hours without any direct remuneration to banks. This diversion of human resources creates an “opportunity loss,” as potential business development activities are sidelined. Private sector banks largely stay away from such high-volume, low-return tasks, leaving PSBs and RRBs to bear the operational and financial burden in the name of public service. While I appreciate the need for these schemes, they should precede adequate recruitment.

Despite these pressures, PSBs have staged an extraordinary financial turnaround FY2024–25: PSBs posted a record ₹1.78 lakh crore collective net profit, a 26% rise over the previous year. The dividends paid to the Government form a significant part of the exchequer’s non-tax revenue, alongside substantial corporate tax contributions. PSBs declared a total dividend of Rs 34,995 crore in FY25, a 25.7 percent increase from Rs 27,853 crore in the preceding year. Of this, Rs 22,775 crore, roughly 65 percent, was paid to the government based on its shareholding, up from Rs 18,092 crore received in FY24. In FY 2024-25, SBI alone paid over ₹25,000 crore as Corporate Tax and remitted more than ₹26,000 crore as TDS. In other words, these banks not only serve as the Government’s policy arms but also as reliable sources of fiscal support, funding the very welfare schemes that consume their manpower.

Over the past 9 years, the NCLT-led insolvency process has witnessed massive “haircuts” on corporate loans—at times exceeding 80-90% of the outstanding amount. During the period Indian banks have written off ₹16.35 lakh crores in non-performing assets (NPAs). While loan write-offs are often justified as an accounting practice to clean balance sheets, the scale and frequency of these concessions to large borrowers raise fundamental questions of fairness, especially when small borrowers face harsh recovery actions. A critical analysis of these cases reveals systemic weaknesses, delays in resolution, poor asset valuations, and allegations of buyer collusion, resulting in huge losses to public funds.

The Government’s plan to privatise IDBI Bank and reduce stakes in other PSBs raises a vital question: If the economy is struggling, is it prudent to monetise strategic financial assets to fund short-term welfare goals? Public sector banks have historically been the backbone for implementing social schemes. Privatisation could erode that capacity. The suspicion is hard to ignore, that the sell-off agenda may be less about efficiency and more about political expediency to liberate short-term funds to fuel populist spending.

The Country aspires to be a $5 trillion economy, yet its rankings on critical development indices paint a sobering picture:

• Per capita GDP: In nominal terms, India ranks 137th in 2025, with GDP per capita around US $2,878, and 119th by PPP (approx. US $12,132)

• Global Hunger Index 2024: India ranks 105th out of 107 countries in the 2024 report, a troubling indicator of persistent undernutrition

• Human Capital Index (education, health): India’s rank is 115 out of 152 countries (2018 data)

• Global Peace Index: Ranked 136th out of 163 countries (2018)

• Gender Gap: India sits at 108th out of 144 countries (2018)

• Press Freedom Index: Ranked 148th out of 180 countries (2020)

• Human Development Index (HDI): Ranking 130th out of 193 countries we are behind many developing peers, far from developed nations

• Corruption Perceptions Index: India stands at 86 out of 179 countries (2020 data)

The average Indian faces high individual income tax rates compared to the limited universal benefits in healthcare and education, unlike developed economies where citizens enjoy strong social safety nets. This mismatch between tax burden and welfare delivery continues to fuel public discontent.

In comparison with developed economies, India’s per capita income remains low, inequality remains stark, and public spending on social sectors, inadequate. Many developing economies, Vietnam, Malaysia, even Bangladesh, have surged ahead in export competitiveness, human capital investment, and manufacturing growth. The Indian economy, while resilient, is grappling with high rate of youth unemployment, rural distress, and uneven industrial growth.

The path ahead cannot be one of neglect or forced privatisation. Public Sector Banks (PSBs) and Regional Rural Banks (RRBs) can strengthen financial inclusion and human capital by channelling credit to priority sectors, rural enterprises, and social infrastructure, thereby addressing structural gaps in education, healthcare, and livelihoods. By remaining in public ownership, these banks can continue to act as instruments of long-term national development, balancing profitability with the country’s socio-economic priorities rather than short-term political or market expediencies. The manpower crisis must be urgently addressed through recruitment, workload rationalisation, and mental health safeguards. Government schemes should come with fair cost compensation to banks. NPA resolution must prioritise accountability and protect public wealth. And most importantly, public sector banks must remain strong, democratic institutions capable of serving not just the economy, but the idea of an equitable India.

If India is to truly rise on the global stage, it must strengthen, not weaken, the institutions that have carried its economic aspirations for decades.

Views expressed here are those of Rupam Roy, General Secretary of All India Bank Officers’ Confederation (AIBOC)