Though the government has already taken enough steps to grant full managerial freedom to PSBs, bestowing them with complete autonomy still remains a debatable issue.

In India, the largest chunk of public savings (close to 80%) is channelized through the banking sector. Public Sector Banks (PSBs) constitute the largest chunk of the banking sector. PSBs are a part of the Scheduled Commercial Banks. They constitute around 78% of the total assets of all scheduled commercial banks, thus, clearly demonstrating their dominance in the Indian banking sector.

With the adoption of prudential norms during the 1990s, banks, hitherto looking healthy started telling a different story. New norms with respect to asset classification and provisioning and the emphasis on capital adequacy started taking its toll on the financials of banks. Further, intense competition from foreign and private banks and market force based determination of interest rates changed the dynamics of the banking industry. While a few PSB's have managed to change with the times, a large number of them are finding it tough to compete in the new environment.