(a) Public sector undertakings are state/central Government owned enterprises. The term is used to refer to companies in which the Government (either the union govt, or state govt, or both) owned a majority (51% or more) of the company equity. These are companies which are funded by Government of India, e.g. GAIL, SAIL, ONGC, BHEL, HAL, BSNL, H.P., B.P. etc.

The three problems faced by public sector undertakings are as follows:

1. Poor planning: Public sector undertakings are often established in a hurry without clear cut objectives. There is always lack of proper evaluation of demand and supply. 

2. Ineffective financial control: Several public sector undertakings suffer from over capitalization due to insufficient planning. This is totally wastage of financial resources. Even investment worth thousands of crores of rupees in the public sector undertakings is not utilized fully. 

3. Inefficient Management: The management of the public sector undertakings are inefficient due to centralized decision-making, frequent transfer of top executives. Some persons are appointed with the approach of politicians. This results inefficient management. Moreover PSU faces the problem of sick units due to time and cost over runs. 

4. Wasteful expenditure: Wasteful expenditure is also one of the problems faced by public enterprises. The Government funds and property are used carelessly by the Government officials and other servants leading to an increase in the cost of production. 

5. Autonomy: Theoretically, public enterprises are provided, autonomy in their working. In practice, the Government, the ministers, the politicians and other Government agencies constantly interfere in their day-to-day activities.

(b)

1. It is necessary to bring more people under the formal fold of the banking sector so that people’s financial requirements can be fulfilled easily and quickly without any hindrances. Moreover people’s savings can easily be mobilised and act of investment can easily be made through banks for capital formation. 

2. People will save more and will invest their savings in the banks and will earn interest on their investments. 

3. Second stage (effective mobilization of savings) The capital formation cannot occur unless the savings of the people are actually utilized (i.e. invested) for producing capital goods. For that effective mobilization of saving has to be done (to the banks). 

4. Banks accepts deposits in two ways. 

They are as follows: 

1. Fixed deposits account: In such deposits, the deposited amount can be withdrawn only after the period of time agreed upon by the bank and the depositor. The interest rates are higher in case of such deposits. 

2. Recurring Account: In case of such deposits, an account holder has to deposit certain fixed amount every month for a specified period. The amount accumulated with interest (cumulative deposits) is paid to the depositor after the specified period.

5. Cash credit: In cash credit, the bank advances a ‘cash loan’ upto a specified limit to the customer against a bond or other security. A borrower is required to open a account and bank allows the borrower to withdraw upto the full amount of the loan. The interest is charged only on the amount actually utilized by the borrower and not on the loan sanctioned.