Professional Documents
Culture Documents
Phdthesis Hum Aditi 2012
Phdthesis Hum Aditi 2012
THESIS
SUBMITTED FOR THE AWARD OF THE DEGREE OF
DOCTOR OF PHILOSOPHY
IN
MANAGEMENT
BY
Ms. ADITI AHOOJA
Registration No: 2K08-NITK-Ph.D.1178Hu
(PROFESSOR)
(ASSISTANT PROFESSOR)
NATIONAL
INSTITUTE
KURUKSHETRA
OF
TECHNOLOGY,
CERTIFICATE
This is to certify that the thesis entitled, A STUDY OF INDIAN
BANKING SECTOR- PERFORMANCE ANALYSIS SINCE
LIBERALIZATION, being submitted by Ms. Aditi Ahooja to the
National Institute of Technology, Kurukshetra, Deemed University,
Kurukshetra for the award of the degree of Doctor of Philosophy is a
record of bonafide research work carried out by her.
The matter presented in this thesis has not been submitted for the award
of any other degree of this or any other institute
.
(Ms. Aditi Ahooja)
Candidate
This is to certify that the above statement made by the candidate is
correct to the best of out knowledge.
Dated:
Dr. RAJENDERA KUMAR
(PROFESSOR)
ACKNOWLEDGEMENT
CONTENTS
Page No.
CHAPTER 1: INTRODUCTION
1.1An overall view
1.2 Objectives
1.3 Hypothesis
1.4 Research Methodology
1.5 Importance
1.6 Limitations
CHAPTER 2: REVIEW OF LITERATURE
CHAPTER 3: PERFORMANCE OF PRIVATE SECTOR AND PUBLIC
SECTOR BANKS
3.1 Introduction
3.2 Performance of Private Sector Banks
3.3 Performance of Public Sector banks
3.4 Summary
CHAPTER 4: COMPARATIVE ANALYSIS OF PRIVATE AND
PUBLIC SECTOR BANKS
4.1 Introduction
4.2 Comparison on the Basis of Profitability
4.3 Comparison on the Basis of Returns or Turnover
4.4 Comparison on the Basis of Asset turnover Ratio
4.5 Comparison on the Basis of Liquidity
4.6 Comparison on the Basis of Capital Adequacy
4.7 Summary
CHAPTER 5: CONCLUSION & SUGGESTIONS
5.1 Introduction
5.2 Findings
5.3 Suggestions
BIBLIOGRAPHY
LIST OF TABLES
Serial No.
Table
Table-3.1
Table-3.2
Table-3.3
Table-3.4
Table-3.5
Table-3.6
Table-3.7
Table-3.8
Table-3.9
Table-3.10
Table-3.11
Table-3.12
Table-3.13
Table-3.14
Table-3.15
Table-3.16
Table-3.17
Table- 3.18
Table-3.19
Table-3.20
Page No.
LIST OF CHARTS
Serial no.
Charts
Page no.
Chart- 4.1
PBDITA/Total Incomes
Chart- 4.2
PBDITA/Total Incomes
Chart- 4.3
PBDPTA/Total Income
Chart- 4.4
PBDPTA/Total Income
Chart- 4.5
PBT/Total Income
Chart-4.6
PBT/Total Income
Chart-4.7
PAT/Total Income
Chart-4.8
PAT/Total Income
Chart-4.9
Chart-4.10
Chart-4.11
Chart-4.12
Chart-4.13
Chart- 4.14
Chart-4.15
Chart-4.16
Chart-4.17
Chart-4.18
Chart-4.19
Chart-4.20
Chart-4.21
Chart-4.22
Chart-4.23
Chart-4.24
Chart-4.25
Chart-4.26
Chart-4.27
Chart-4.28
Chart-4.29
Chart-4.30
Chart-4.31
10
Chart-4.32
Chart-4.33
Chart-4.34
Chart-4.35
Chart-4.36
Chart-4.37
Chart-4.38
Chart-4.39
Chart-4.40
Chart-4.41
Chart-4.42
Chart-4.43
Chart-4.44
Chart-4.45
Chart-4.46
Chart-4.47
Chart-4.48
11
Chart-4.49
Chart-4.50
Chart-4.51
Chart-4.52
Chart-4.53
Chart-4.54
Chart-4.55
Chart-4.56
12
CHAPTER: 1
1.1
INTRODUCTION
The Stalwart of Indian Financial community nodded their heads sagaciously when
Prime Minister Mr.Manmohan Singh said in his speech If there is one aspect in
which we can confidently assert that India is ahead of China it is the robustness and
soundness of banking system. Indian banks have been rated higher than Chinese
banks by the international rating agency Standards & Poors.
Infact economic development is a continuous process. The success of economic
development depends essentially on the extent of mobilization of resources and
investment and on the operational efficiency and economic discipline displayed by the
various segments of the economy. Banks play a positive role in the economic
development of a country as they not only accept and deploy large funds in a
fiduciary capacity but also leverage such funds through credit creation. A commercial
bank is a financial intermediary which accepts deposits of money from the public and
lends them with a view to make profits. A post office may accept deposits but it cannot
be called a bank because it does not perform the other essential function of a bank, i.e.
lending money. The banking system forms the core of the financial sector of an
economy. The role of commercial banks is particularly important in underdeveloped
countries. Through mobilization of resources and their better allocation, commercial
banks play an important role in the development process of underdeveloped countries.
A commercial bank accepts deposits which are of various types like current, savings,
securing and fixed deposits. It grants credit in various forms such as loans and
advances, discounting of bills and investment in open market securities. It renders
investment services such as underwriters and bankers for its issue of securities to the
public.
Further, by offering attractive saving schemes and ensuring safety of deposits,
commercial banks encourages willingness to save among the people. By reaching out
to people in rural areas, they help convert idle savings into effective ones.
Commercial banks improve the allocation of resources by lending money to priority
sectors of the economy. These banks provide a meeting ground for the savers and the
13
investors. Savers may not invest either because of inadequate savings and lack of risktaking spirit.
1.1 An Overall view
1.1.1Classification of Commercial Banks in India
Commercial banks in India can be classified in following ways:
SCHEDULED COMMERCIAL
BANKS
SCHEDULED CO-OPERATIVE
BANKS
Scheduled Urban
Co-operative Banks
Scheduled State
Co-operative Bank
Foreign Banks
14
maintaining a part of their cash reserves with the RBI. Non-scheduled banks are
disappearing from the banking scene and hence they are not important.
b) Indian and Foreign- Banks: Indian banks are those which are incorporated in
India and have their head offices in India. Some big Indian banks have their branches
in foreign countries. Foreign banks are incorporated in foreign countries with their
head offices outside India. They are scheduled banks and generally specialize in the
field of foreign exchange.
c) Public Sector and Private Sector Banks: The Central Government entered the
banking business with the nationalization of the Imperial Bank of India (now the State
Bank of India) in 1955. In 1969, fourteen large banks were nationalized and again in
1980, six more banks were taken over by the Government. These nationalized banks
are called public sector banks. The others are private sector banks.
d) Regional Rural Banks: These were started in 1975 to cater to the needs of rural
economy of India. They pay particular attention to the credit requirements of small
farmers, artisans and agricultural workers. They operate mainly at the district level.
The Bank of Bengal (1806), Bank of Madras (1843) and Bank of Bombay (1814)
were the presidency banks which were initially confined to discounting of bills or
other negotiable private securities, keeping cash accounts, receiving deposits, and
issuing and circulating cash notes. There were no legally recognized commercial
banks with special right within India other than the Presidency banks. With the
passing of the Paper Currency Act, 1861, the right to issue currency notes by the
Presidency banks was abolished and the same function was entrusted to the
Government. In 1921, the three Presidency banks and their branches were merged to
form the Imperial Bank of India, which acquired the role of a commercial bank, a
bankers bank and a banker to the government.
A banking crisis that occurred during 1913 revealed weaknesses of the banking
system such as the maintenance of an undue proportion of cash and other liquid
assets, the grant of large unsecured advances to the directors of banks and to the
companies in which the directors were interested. The issue of failures of banks was
investigated in detail by the Indian Central Banking Enquiry Committee (1929-31),
the terms of reference of which included "the regulation of banking with a view to
protecting the interest of the public".' The Report of the Indian Central Banking
Enquiry Committee emphasized the need for enacting a special Bank Act, covering
the, organization, management, audit and liquidation of banks. The authoritative
recommendations of the Committee have been an important landmark in the history of
banking reforms in India.
15
When the Reserve Bank of India Act 1934 came into effect, an important function of
the RBI was to hold the custody of the cash reserves of banks, granting them
accommodation in a discretionary way and regulating their operations in accordance
with the needs of the economy through instruments of credit control. With regard to
the banking system of the Country, the primary role of the RBI was conceived as that
of the lender-of-last-resort for the purpose of ensuring the liquidity of the short-term
assets of banks.
The first attempt at banking legislation in India was the passing of the Indian
Companies (Amendment) Act, 1936, the new legislation, which embodied some of
the recommendations of the Indian Central Banking Enquiry Committee. The special
status of scheduled banks was recognized though certain provisions of the amended
Act, such as building up of reserves, were made applicable only to non-scheduled
banks.
During the initial phase of commercial banking developments in India, banks were
regulated and governed by the East India Company's Government, the Royal Charter
and the Government of India. The law relating to companies was enacted in a
comprehensive form in the Companies Act, 1913, which was made applicable to
banking companies as well. The decades of 1930s and 1940s had witnessed
proliferation of banks, which were not regulated and supervised statutorily in a
comprehensive manner. As a sequel, several banks failed.
The supervisory powers conferred initially in 1940 vested with the RBI to inspect
banking companies on a restricted scale in consultation with the Government of India.
The purpose of these inspections was limited to satisfy the RBI regarding the
eligibility for a license, opening of branches, amalgamation, and compliance of the
directives issued by it. With the prior consent of banking companies concerned, the
RBI undertook to inspect their books and accounts with a view to determining the real
or exchangeable value of their paid-up capital and reserves for the purpose of
considering their eligibility for inclusion in the Second Schedule to the Reserve Bank
of India Act. Specific powers to inspect banking companies were granted to the RBI
by the Banking Companies (Inspection) Ordinance, 1946. The Ordinance made the
prior consent of a banking company unnecessary for its inspection and also widened
the objective of the inspection.
Further, in order to protect the interests of the depositors and develop the banking
system on sound lines, the regulation and supervision of the banking system was
entrusted to the RBI by enacting the Banking Regulation Act, 1949. The Banking
16
Pre-Nationalization Period:
The year 1969 was indeed a landmark in the history of commercial banking in India.
In July of that year, the government nationalized 14 major commercial banks of the
country. In April 1980, Government again nationalized 6 more commercial banks.
In 1951, when the First Five Year Plan (1951-56) was launched, the development of
rural India was accorded the highest priority. The All India Rural Credit Survey
Committee recommended the creation of a State-partnered and State-sponsored banks
by taking over the Imperial Bank of India and integrating with it, the former Stateowned or State-associated banks. Accordingly, an Act was passed in the Parliament in
May 1955 and the State Bank of India was constituted on July 1, 1955. Later, the
State Bank of India (Subsidiary Banks) Act was passed in 1959 enabling the State
Bank of India to take over eight former State-associated banks as its subsidiaries.
During the pre-nationalization period, the industrial sector claimed the lion's share in
bank credit. Within the industry, the large-scale sector cornered the bulk of credit and
the share of small-scale industries was marginal. There were many reasons for the
dominance of large industrial companies in the banking sector. Firstly, many
commercial banks were under the ownership/control of big industrial houses.
Secondly, through common directors (called interlocking of directorship); many
commercial banks were connected with industrial and business houses, facilitating the
flow of credit to large industries. Thirdly, the established industrial houses could
obtain industrial licenses easily and on that basis, appropriate long- term bank credit.
A disturbing feature of the pre-nationalization banking policy was the negligible share
of agricultural sector in bank credit. This share hovered around 2 per cent of total
commercial bank credit. The privately-owned commercial banks were neither
interested nor geared to meet the risky and small credit requirements of the farmers.
Similarly, the share of other non-industrial sectors in bank credit was also low.
.
Since the commercial banks were under the control of big industrialists, the lendable
funds of the banks were sometimes used to finance socially undesirable activities like
hoarding of essential commodities.
17
As already noted, leading commercial banks of the country were nationalized in 1969
with the following objectives in view.
1. To break the ownership and control of banks by a few business families.
2. To prevent concentration of wealth and economic power.
3. To mobilize savings of the masses from every nook and corner of the country.
4. To pay greater attention to the credit needs of the priority sectors like agriculture
and small industries.
The post-nationalization period witnessed a remarkable expansion in the banking and
financial system. The biggest achievement of nationalization was the reallocation of
sectoral credit in favor of agriculture, small industries and exports which formed the
core of the priority sector.
Nationalization of commercial banks was a mixed blessing. After nationalization
there was a shift of emphasis from industry to agriculture. The country witnessed
rapid expansion in bank branches, even in rural areas. Branch expansion programme
led to mobilization of savings from all parts of the country. Nationalized banks were
able to pay attention to the credit needs of weaker sections, artisans and selfemployed. However, bank nationalization created its own problems like excessive
bureaucratization, red-tapism and disruptive tactics of trade unions of bank
employees.
Until the early 1990s, the banking sector suffered from lack of competition, low
capital base, Low productivity and high intermediation cost. Commenting on the
performance of the nationalized banks, the Reserve Bank of India observed, "After
the nationalization of large banks in 1969 and 1980, the Government-owned banks
have dominated the banking sector. The role of technology was minimal and the
quality of service was not given adequate importance. Banks also did not follow
proper risk management systems and the prudential standards were weak. All these
resulted in poor asset quality and low profitability."
The key objective of reforms in the banking sector in India has been to enhance the
stability and efficiency of banks. To achieve this objective, various reform measures
were initiated that could be categorized broadly into three main groups: (a) enabling
measures, (b) strengthening measures and (c) institutional measures.
18
19
The health of the financial sector is a matter of public policy concern in view of its
critical contribution to economic performance. Financial regulation and supervision
assumes importance in ensuring that the financial system operates along sound lines.
There has been a long tradition of regulating financial systems by central banks in
several countries.
The regulation and supervision of banks are key elements of a financial safety net as
banks are often found at the centre of financial crises. The primary justification for
financial regulation by authorities is to prevent systemic risk, avoid financial crises
and protect depositors' interest and reduce asymmetry of information between
depositors and banks. As the costs of financial crises were perceived to be very high,
the authorities realised that they should be avoided at all costs. As a result, banks
came to be regulated everywhere. Besides, financial regulation attempts to enhance
the efficiency of the financial system and to achieve a broad range of social
objectives. Going by the experience in several countries, effective regulation is in the
interests of all concerned, though it cannot be based on a one size-fits-all approach.
However, it is important to bear in mind that while financial institutions do benefit
from an appropriate regulatory regime, there is not much evidence that the existence
of a regulatory jurisdiction makes institutions stronger and less prone to shocks. There
is neither a unique theoretical model, nor just one practical approach to the regulation
and supervision of a financial system. The existence of different types of regulatory
models of the financial system makes the ideal choice a difficult exercise.
The RBI, under the Banking Regulation Act, 1949 is required to satisfy itself, by
inspecting the accounts books and methods of operation of the banking company,
before granting a license. This provision helps to ensure that the banking company is
in a position to pay its depositors in full as their claims accrue and that its affairs are
not conducted to the detriment of its creditors.
The regulatory and supervisory approaches were modified as and when deemed
necessary. The focus of the RBI's role as a regulator and supervisor has shifted
gradually from micro regulation of banks' day to day activities to macro supervision
with a view to ensuring that the regulations are adhered to in an environment where
banks' management are given freedom to take all commercial decisions based on their
own judgment.
20
The nationalization of 14 major commercial banks on July 19, 1969 was a turning
point in the Indian banking system. The focus of regulation was reoriented to meet the
objectives of the nationalization of banks. In the context of the wider role assigned to
banks following the nationalization, a re-orientation of the system of bank inspections
was called for. The objectives as per the re-orientation of bank inspections were the
evaluation of the overall performance of each bank in different aspects.
The massive expansion of the banking system had resulted in certain stresses and
strains. With wider geographical coverage, lines of supervision and control weakened,
the RBI appointed a Working Group on inspection of banks in December 1981 to
review the system of inspection of commercial banks in the public and the private
sectors and to suggest improvements/modifications. Following the recommendation
of the Working Group, the Annual Appraisal of inspection of public sector banks was
dispensed with, with effect from January 1985; a system of Annual Financial Review
was introduced to be conducted subsequent to the annual audit of the banks. Issues
such as review of internal control systems at bank branches of boards of nationalized
bank and increasing the capital systems at bank in the context of growing
international exposure Indian banks were given importance. A review of existing
system of inspection of banks was attempted.
The decade of the 1990s was a watershed in the history of the Indian
financial system in general and the banking system in particular.
Notwithstanding the remarkable progress made by the Indian banking
system in achieving social goals during the 1980s, it experienced certain
problems that led to decline in efficiency and productivity and erosion of
profitability. Factors such as directed investment and directed credit programmes
affected the operational efficiency of the banking system. The quality of loan
portfolio also deteriorated. The functional efficiency was affected due to overstaffing, inadequate progress in inducting technology and weaknesses in internal
organizational structure of the banks. These factors necessitated urgent reforms in the
financial system. Accordingly, a Committee on the Financial System (Chairman: M.
Narasimham) was constituted in 1991 to look into various issues related to banking
with a view to initiating wide ranging financial sector reforms. Following the Report
of the Narasimham Committee, the RBI adopted a comprehensive approach on the
reforms of the financial sector.
The Department of Supervision (DoS), now called Department of Banking
Supervision (DBS) was set up within the RBI in 1993 to strengthen the institutional
framework. A high powered Board for Financial Supervision (BFS), comprising the
Governor of RBI as Chairman, one of the Deputy Governors as Vice-Chairman and
21
four Directors of the Central Board of the RBI as members was constituted in
November 1994.
Measures such as deregulation of interest rates, reduction of statutory pre-emption
such as CRR and SLR, and provision of operational autonomy to the banks were
taken to straighten the banks. Further, various prudential measures that conformed to
the global best practices were also implemented. One of the major objectives of
banking sector reforms has been to enhance efficiency and productivity through
enhanced competition. Following the Narasirnham Committee's recommendations,
guidelines to facilitate entry of the private sector banks was issued in 1993 to foster
greater competition with a view to achieve higher productivity and efficiency of the
banking system.
Working Group to Review the System of On-site Supervision over Banks (Chairman:
S. Padmanabhan), 1995 Over the years, the regulatory and supervisory polices in
India have transformed significantly - in tandem with the global developments and the
changing pace of the Indian financial system. Apart from on-site inspections, the RBI
has adopted three other supervisory approaches, viz. offsite monitoring, internal
control system in banks and use of external auditors. A review of the RBI's inspection
system was undertaken by this Working Group. The Group, while reemphasizing the
primacy of on-site inspections, recommended switching over to a system of ongoing
supervision. It recommended a strategy of periodical full-scope on-site examinations
supplemented by an in-house off-site monitoring system and linked exercises in
between two statutory examinations.
The Working Group recommended orienting supervision for enforcement of
correction of deviations. It was decided that the periodic and full scope statutory
examinations should concentrate on following core areas of assessment.
22
The RBI has been focusing and encouraging market discipline and ensuring good
governance with an emphasis on fit and proper management and diversified
ownership in more recent times. Banks are encouraged to diversify and offer more
varieties of products and services in addition to the conventional products.
Computerization of banking has received high importance in recent years due to
technological advancement that are taking place in the financial systems world over.
The direction towards 100 per cent computerization has resulted in renewed vigor in
the banks towards fulfillment of this requirement, which could provide better
customer service, internal control and effective management. The financial sector
technology vision document released by the RBI in May 2005 elucidates its thrust
areas by providing generic information on various standards and approaches, audit
and requisite focus on business continuity plans.
Considering the complexities of banking business and emerging product innovations
with complex risk profiles, the RBI initiated measures to implement Risk Based
Supervision (RBS) approach to the supervision. The RBS process has been recently
revisited by revising the risk profiling templates and introducing a new rating
23
framework. This revision is likely to make the RBS process more risk-sensitive,
objective and user friendly,
In November 2004, the RBI revised the guidelines on 'Know Your Customer' (KYC)
principles in line with the recommendations made by the Financial Action Task Force
(FATF) on standards for Anti-Money Laundering (AML) and Combating Financing
of Terrorism (CFT).
Financial sector reforms, introduced in the early 1990s in a gradual and sequenced
manner, were directed at the removal of various deficiencies from which the system
was suffering. The basic objectives of reforms were to make the system more stable
and efficient so that it could contribute in accelerating the growth process.
In response to reforms, the Indian banking sector has undergone radical
transformation during the 1990s. Reforms have altered the organizational structure,
ownership pattern and domain of operations of institutions and infused competition in
the financial sector. The competition has forced the institutions to reposition
themselves in order to survive and grow. The extensive progress in technology has
enabled markets to graduate from outdated systems to modern market design, thus,
bringing about a significant reduction in the speed of execution trades and transaction
costs.
With the increasing integration of various segments of financial markets, the
distinctions between banks and other financial intermediaries are also getting
increasingly blurred. Another important aspect of reforms in the financial sector has
been the increased participation of financial institutions, especially banks, in the
capital market. These factors have led to increased inter-linkages across financial
institutions and markets. While increased inter-linkages are expected to lead to
increased efficiency in the resource allocation process and the effectiveness of
monetary policy, they also increase the risk of contagion from one segment to another
with implications for overall financial stability. This would call for appropriate policy
responses during times of crisis. Increased inter-linkages also raise the issue of
appropriate supervisory framework.
Banking sector reforms in India are grounded in the belief that competitive efficiency
in the real sectors of the economy will not realize its full potential unless the banking
sector was reformed as well. Thus, the principal objective of banking sector reforms
was to improve the allocation efficiency of resources and accelerate the growth
process of the real sector by removing structural deficiencies affecting the
performance of banks.
In India, while the banking system continues to play a predominant role, it is
significant to note that, as a result of various reform measures, the relative
significance of financial markets has increased. This augurs well for the overall
stability of the financial system. The East Asian crisis has also underlined the need for
a balanced financial system wherein financial markets also play an important role in
24
providing necessary liquidity, especially during times of crisis. Banking system also
requires liquidity in times of stress, which only deep and liquid financial markets can
provide. The main thrust of this study is to examine the performance of banking
sector in liberalization era and comparing the performances of private sector and
public sector banks in India.
1.2 Objectives
To make the comparison of the performances of public sector and private sector banks
in India since liberalization era.
1.3 Hypothesis
Within the framework of the above objectives, the following hypotheses are verified
during the course of analyses:
banks,
25
(IBA), Reports of Credit Rating Agencies like S&P, CRISIL, ICRA, Reports of
various consulting firms like Arthur Anderson, Price Warehouse, etc.
The time series data were collected from 1991-1992 to 2008-2009. The performance
analyses for this study were based on 20 banks. The study covers both Public Sector and
Private sector Banks in India since liberalization. The banks were selected on the basis of
categorization of Paid up Capital after liberalization.
CRITERIA
SIZE
LARGE
SMALL
The performances of following 20 banks have been analyzed: Private sector Banks are:
Axis Bank, South Indian Bank Ltd., Bharat Overseas Bank Ltd., Dhanalakshmi Bank Ltd.,
HDFC Bank Ltd., ICICI Bank Ltd, Jammu & Kashmir Bank Ltd., Yes Bank, Bank of
Rajasthan, and Kotak Mahindra Bank. Public Sector Banks are: Bank of Baroda, Bank of
India, Central Bank of India, Punjab & Sind Bank, State Bank of India, UCO Bank, United
Bank of India, Vijaya Bank, Bank of Maharashtra and Punjab National bank.
26
1)
Capital Adequacy Ratio
2)
Profitability Ratio
PBDITA
Total Income
Profit after tax+ Total Provision+ Provision for direct taxes + Amortization+
Depreciation
Total Income
27
PBDPTA
Total Income
PBT
Total Income
PAT
Total Income
28
a)
h)
3)
Return Ratios
a)
Profit after tax + Total provisions+ Taxes- prior period income and extraordinary
income
Average Net worth
b)
29
c)
PAT
Avg. Net worth
d)
Cash Profit
Average Net worth
Cash profit
Avg. Net worth
Profit after tax + Total Provisions + Taxes- prior period income and
extraordinary income
Average Capital Employed
a)
30
PBPT
Avg Capital Employed
b)
c)
PAT
Avg Capital Employed
Profit after tax+ Provisions + Direct Taxes- prior period income and
extraordinary income
Average total assets
f)
PBPT
Avg Total Assets
31
g)
b)
PAT
Avg Total Assets
4)
a)
Total Income
Avg. total assets
b)
Total Income
Compensation to employees
5)
Liquidity Ratio
This ratio is calculated on the following basis:
a)
Current assets
Current liabilities
b)
c)
Liquid Assets
Current Liabilities
(Quick ratio)
32
Y'= A+ B1X1 + B2 X2 + B3 X3
Where,
Y= Relationship between a dependent or criterion variable of interest
X= Independent variables or potential predictor variables
A= Constant
B= Corresponding Value
(2)
)=
1 - R2
2
(N - k - 1)(1 - r 12
)
SD
SD
Y
X
( SE
).
(4)
(observed Bj)
t=
(SE for Bj)
Bj= Slope of the sample regression line,
33
SE j =
(5)
1 - R Y2
.
2
(N - k - 1)(1 - R (j)
)
Where,
R2Y = Multiple correlation
k
34
Where,
is the mean for private sector banks,
is the mean for public sector banks,
is the sum of squares private sector banks,
is the sum of squares public sector banks,
n1 is the number of private sector banks, and
n2 is the number of public sector banks
And
1.5 Importance
It is evident from the study that the nationalization of 14 major commercial banks in
1969 was a turning point in the Indian banking system. The focus of regulation was
reoriented to meet the objectives of the nationalization of banks. Notwithstanding
the remarkable progress made by the Indian banking system in achieving
social goals during the 1980s, it experienced certain problems that led to
35
1.6 Limitations
All the economic / scientific studies are faced with various limitations and the study is
no exception to the phenomenon. The various limitations of the study are:
36
1. At various stages the basic objective of the study suffered due to inadequacy of time
series data from related agencies. There has also been problem of sufficient
homogeneous data from different sources, for example, the time series used for
variables like profitability, liquidity, capital adequacy, assets and return. The averages
are used at certain occasions; therefore, the estimated regression coefficients may
deviate from the true ones.
2. Above all since it is a Ph.D. project, the research did face some problems of resources
like time and money.
37
CHAPTER: 2
REVIEW OF LITERATURE
The concerned literature with the research work is presented below to highlight the
work done on the subject in India and abroad which proved useful to delineate the
various issues and methodologies adopted
Ahluwalia, Montek S (01) (2002) conducted a study on Economic Reforms in
India since 1991: Has Gradualism worked? This study deals with the impact of
gradualist economic reforms in India on the policy environment from 1991 to 2001.
India was a latecomer to economic reforms, embarking on the process of earnest only
in 1991, in the wake of an exceptionally serve balance of payment crisis. India's
economic performance in the post-reform period has many positive features. Opinions
on the causes of India's growth deceleration vary. Fiscal profligacy was seen to have
caused India's balance of payments crisis in 1991, and a reduction in the fiscal deficit
was therefore an urgent priority at the start of the reforms. The trends cast serious
doubts on India's ability to achieve higher rates of growth in future. The central
government's effort must be directed primarily toward improving revenues, because
performance in this area has deteriorated significantly in the post-reform period.
There is also no room to reduce central government subsidies, which are known to be
highly distortionary and poorly targeted, and to introduce rational user charges for
services such as passenger traffic on the railways, the postal system and university
education. Reforms in industrial and trade policy were a central focus of much of
India's reform effort in the early stage.
38
banking industry. In this study the author analyzed that NPAs are indeed a serious
problem for banks in India and it is easy to see why a bank might hesitate to lend if
the loan has a high risk of going bad. NPAs is not what the banks do but what they
do not do. A lot of the NPAs probably come about because bankers systematically
fail to pull the plug when it is still possible to get out with their capital intact. Further
they analyzed reducing public control of the banks is probably one way to get to
this, though there is no guarantee that this would change things a the firms are
starved of credit, even though there is nothing to stop them to borrow some more
from a private lender. This might mean that the private banks have inherited the
culture of the public banks, in which case-changing control will not help. In many
ways the banking system in India, including the regulatory apparatus, remains a
product of the planning years. It seems to be a system that was conceived for a world
where people were expected to do what they were told, and things happened to as
they were meant to. The real challenge, whether public control remains or not, is to
create a banking system for a world where investors take risk and sometimes fail,
where bankers need to take initiative and use their judgment. We need incentives for
bankers that reward success but make allowances for bad luck, and which at the same
time guard against the temptation to be irresponsible or corrupt.
Bhatt O P (04) (2007) conducted study on Banking in India n this study the
banking industry journey from post independence to date has been discussed. Banking
in India initially was the system of money lending in which rates varied not according
to the nature of transaction but in relation to the particular caste to which the
borrowers belong. Innumerable private joint stock banks under both European and
Indian control also emerged during 19th century mainly to cater to the credit needs of
the vast hinterland of the subcontinent. The 19th century also witnessed the arrival of
several exchange banks in India for financing the subcontinents burgeoning foreign
trade, which three presidency banks and imperial banks were rigorously excluded
from engaging in. the concept of banking underwent a sea change with the advent of
the state bank. A distinct shift in focus was evident from security oriented to need
based lending, from urban to rural banking from activities that contributed essentially
to the banks commercial objectives to also those that largely served a social purpose.
Further banking underwent a major structural change after the nationalization of
banks. A phenomenal expansion of the branch networked occurred particularly in the
hitherto under banked rural areas. The reserve bank geared its branches licensing
policy to the objectives of ensuring an expansion of offices both in unbanked centers
and in under banked states as well as in urban and metropolitan centers. While the
opening up of Indian financial markets has provided enormous opportunities to banks
to tap new areas of business, it has also posed an enormous challenge for the smaller
banks to compete with the new entrants in terms of fund based technology and new
products. Thanks to the booming global economy, expanding technology and
changing mindset, banking is now set to be transformed. Age-old processes and
systems are about to be discarded as fresh rules are being framed.
39
40
service provider and their activities are getting redefined almost every day. To
sustain in this context that too with profitability, commercial banks will have to look
at 3 major directional changes: redefine their strategy strictly under risk-return
framework, implement business process re-engineering and revamp their
organizational structure and network in line with global standards.
Brown Craig O. and Dinc I. Serdar (08) (2005 ) conducted study on The Politics
of Bank Failures: Evidence from Emerging Markets This paper studies large
private banks in 21 major emerging markets in the 1990s. It first demonstrates that
bank failures are very common in these countries: about 25 percent of these banks
failed during the seven-year sample period. The study also shows that political
concerns play a significant role in delaying government interventions to failing banks.
Failing banks are much less likely to be taken over by the government or to lose their
licenses before elections than after. This result is robust to controlling for
macroeconomic and bank-specific factors, a new party in power, early elections,
outstanding loans from the IMF, as well as country-specific, time-independent factors.
This finding implies that much of the within-country clustering in emerging market
bank failures is directly due to political concerns.
Batra Mr. Sumant & Dass Kesar (09)(2003) conducted study on Maximising
value of Non Performing Assets This study indicates that NPA has affected the
profitability, liquidity and competitive functioning of Public and Private Sector Banks
and finally the psychology of the bankers in respect of their disposition towards credit
delivery and credit expansion. The ultimate impact of the actions put forward by both
the RBI and Government of India, however, will be reflective of the degree of
effective. Enforcement by the regulators themselves. Indian banks have to remain
focused in their efforts to recover their spiraling bad loans, or non-performing assets,
to sustain the positive trend of improving asset quality. The lack of research and
academic activity in the banking sector is also felt and attended to at institutional
41
level. The areas felt to be looked into, inter alia, are: i) Should bankers take
substantial exposure to the stock market? ii) Should bankers be exposed to equity
financing? iii) Degree and extent to which Indian banking system should often quote
the RBI norm which it regards as a universal application. iv) Advances against shares
are considered well secured and safe, and the risk factor has to be tackled by higher
margin and effective follow up. But do they pass the test of purpose orientation,
namely financing only for a productive purpose? v) What should be the guiding
principles for RBI for the purpose of orientation and end use principle, when it comes
to the question of extending equity finance to corporate? vi) What should be norms
ceiling for Advances to Share Brokers and Market Makers, for meeting working
capital needs and surprisingly, in the absence of account wise ceiling prescribed by
RBI?
Besides the above still, there are several other worries about the banking sector,
mainly confusion over ownership and control. Sometime soon India will be forced to
apply the norms of developed countries and many banks (including some of the
biggest) will show very poor return ratios and dozens of banks will be bankrupt.
When that happens the two popular reasons to defend bad banks will disappear. These
are: one, to save face in the remote hope of that fortune will revive and two, some
banks are too big to be allowed to fail, fearing social upheaval.
Chhikara Dr. Sudesh (10)(2007) conducted study on Causes and Impact of Non
Performing Assets in Public Sector Banks : A state level Analysis This paper
examines the reasons of NPAs in selected public sector banks in the state of Haryana.
It also examines the impact of NPAs on profitability and other financial parameters.
Lending is always accompanied by the credit risk arising out of the borrowers default
in repaying the money. A banker should therefore manage his loan in a safe manner.
This may include development comprehensive credit appraisal and monitoring
system, introduction of credit audit system and also establishment of the system to
tackle potential problem of recovering loans well in time. It is concluded that impact
of NPAs on the performance of the banks is manifold. Profitability is the worst
affected by NPAs followed by Credit deployment and investment policy,
Achievement of capital adequacy ratio level and reduction in Productivity.
Among the preventive measures to control NPAs Efficient credit appraisal,
Effective credit monitoring, Monitoring of standard assets and imparting
specialized training to bank officers reconsidered most critical. Securitization of
assets and suit filling are rated as the important curative measure to control NPAs.
Mahor handicaps in the recovery of the advances are cumbersome legal system,
inadequacy and lack of proper training of staff. Total elimination of NPAs is not
possible in banking business owing to externalities but their incidence can be
minimized. It is always wise to follow proper policy appraisal, supervision and follow
up of advances to avoid NPAs.
42
Chen Ping, Yang Hailiang ,Yin George (11) (2008) conducted study
onMarkowitz's mean-variance asset-liability management with regime
switching: A continuous-time model This paper analyzed an asset-liability
management (ALM) problem under a continuous-time Markov regime-switching
model. By adopting the techniques of Zhou, X.Y., Yin, G. Markowitz's meanvariance portfolio selection with regime switching: A continuous-time model. SIAM
J., they investigated the feasibility, obtain the optimal strategy, delineate the efficient
frontier, and establish the associated mutual fund theorem.
43
Deolalkar G.H (14) The Indian Banking Sector On the road to progress In this
study the author has discussed the role of RBI in the banking sector-whether
commercial, cooperative or rural. Further he discussed the Non-Performing Asset
problem in the Indian banking. About 70 percent of gross NPA are locked up in
Hard-core doubtful and loss assets, accumulated over years. Most of these are backed
by securities and therefore recoverable. NPAs in Indian Banks as a percentage of
total assets are quite low. The NPA problem in India is exaggerated by deriving NPA
figures based o percentage against risk assets instead of total earning assets. The
Indian Banking system also makes the full provisions and not net of collaterals as
practiced in other countries. One of the main causes of NPAs in the banking sector is
the directed loans system under which commercial banks are required to supply a
prescribed percentage of their credit (40 percent) to priority sector. Further in this
study they discussed asset liability management. Interest rates have changed several
times in the past few years causing maturity transformations in assets and liability
and their frequent repricing. A clear and continuous statement of rate sensitive assets
and rate sensitive liabilities has to form the basis of interest rate risk management.
RBI is expected to issue guidelines that show that management driven assets
liability management (ALM) initiatives in banks are absent. Traditionally many
banks including foreign banks have used call money as regular funding source.
RBI and government should improve bank balance sheets by removing
contamination effect of NPAs in the form of government guaranteed loans i.e. by
issuance of special government banks for converting such NPAs into government
debt.
Derviz Alexis and Podpiera Jiri (15) Predicting Bank CAMEL ad S&P ratings:
The Caste of Czech Republic This study had the objective of identifying the
determinants of commercial bank rating in the Czech Republic. They investigated
changes in the external Standard and Poors (S&P) long term rating and the
CAMELS rating used by the banking supervisory body of Czech National Bank.
The sample of banks covers the large banks group, specifically the three biggest
commercial banks of the country: Ceska Sporitelns, Komereni Banka and
Ceskoslovenska Obchodni Banks. The time range considered in the case of the S&P
rating was 1998-2001 in the monthly periodicity. For S&P ratings they constructed
an ordered logit model that accounts for the fact that the observations are
independent across the banks but not within each other. The partial likelihood
estimation technique was applied to that model. The result shows that in relation to
the S&P rating the exclusive information at the regulators disposal provides a
certain predictive advantage over outside observers. This is not in the CAMELS
44
rating case, since evidently an observer who is able to reproduce the construct of
CAMELS for a given bank has very much the same information as the regulator.
45
technically more efficient banks are those that have, on an average, less nonperforming loans. A multivariate analysis based on the logit model reinforces these
findings.
Dhar V Ganga and Reddy G Nares(18) (2007) conducted study on Mergers and
acquisitions in the Banking Sector- an Empirical Analysis The prime objective
of this study is to analyze the growth and performance of the sample banks during
pre and post merger periods. Based on the study it was observed that the
performance of the merged banks in respect to the growth of total assets, revenue,
profits, investments and deposit witnessed a significant increase. ICICI bank has
achieved the growth rate in all respects, excepts for deposits, among the sample
banks. The study also highlights that SBI, BOB and UBI have greater consistency in
their performance, reflecting lower risk faced by them. As against this Centurion
Bank, HDFC bank and ICICI bank have faced greater inconsistency and higher risk,
thus pointing out that the public sector merged banks have shown better
performance, with greater consistency and lower risk as compared to private sector
banks in India.
46
acquirers that were involved in acquisitions in the Asian commercial banking sector
over the period 1998 to 2004 and a control sample of non-merged banks matched by
country and year. Three logistic regression models are estimated to determine the
factors that influence the probability of being involved in an acquisition either as a
target or as an acquirer. The results indicate that more asset risky portfolios increase
this probability. Higher liquidity also increases the probability of being acquired.
The probability of being involved in an acquisition as acquirer also increases with
size and cost efficiency. Finally, more profitable banks are more likely to be
involved in acquisitions as acquirers rather than as targets. When we partition our
sample in two sub-periods we find that only the higher loan loss provisions of
targets and the higher size of acquirers remain robust over time.
47
well and are more likely to operate at higher levels of technical efficiency. A close
relationship is observed between efficiency and soundness as determined by bank's
capital adequacy ratio. The empirical results also show that technically more
efficient banks are those that have, on an average, less non-performing loans. A
multivariate analysis based on the Tobit model reinforces these findings.
48
heavily in real estate, which conforms to the empirical research on the composition
of household portfolios. The performance results indicate that the models perform
better for stochastic liabilities due to the fact that assets and liabilities share
common risk factors.
49
concept. The flexibility given to banks by regulators under Basel II for developing
the measurement framework under the advanced approaches, has resulted in varying
practices followed by banks in managing and measuring operational risk.
50
to a specific point in time. The key factors in gap analysis are the future course of
interest rates and whether the gap is positive or negative. As interest rates are rising,
a positive gap generally should be created. Assets are reprised higher at a faster rate
than are liabilities. The maturity matrix is a special gap report by which one can
compare the relative volume of assets and liabilities at various maturity levels and
identify where gaps exist. Based on the forecast for interest rates and the slope of
the yield curve, one can determine the most profitable maturities and refunding to
be made on specific assets and liabilities
Lafayett (34) (1997 conducted study on Banking on change. The study focuses on
the banking reforms implemented by the government of India. Nationalization of
major domestic banks; Factors that limited the viability of state-owned banks;
Removal of the interest rate structure; Allocation of resources to re-capitalize some
banks. INSET: Foreign banks in India
51
reaction to evolving market prospects, a few pioneering banks might adjust quickly
to seize the emerging opportunities, while other responds cautiously. As
deregulation gathers momentum, commercial banks would need to devise
imaginative ways of augmenting their incomes and more importantly their feeincomes so as to raise efficiency and productivity levels.
52
market but their impact is tremendous. These banks occupy a niche between state
owned and foreign banks.
53
54
total deposits mobilized and total credit advanced by all scheduled commercial
banks. The entry of domestic private sector banks has been altering this trend to
some extent since the late nineties. There has been a significant change in the
composition of deposits, with a clear shift in favour of term deposits, whereas
demand deposits witnessed a decline. The share of savings bank deposits remained
more or less constant. It is observed that more funds of short-term nature in the form
of demand deposits are parked with the foreign banks group. This may be an
indication that the business class is attracted towards better service offered by
foreign banks. Across the bank groups, there has been a significant reduction in the
non-performing assets (NPAs). The composition of NPAs of public sector banks
interestingly reveals that NPAs connected to non-priority sector has increased,
whereas, NPAs relating to priority sector advances exhibited a decline. This goes to
explode the commonly held myth that the problem of NPAs is caused mainly due to
the credit allocation made to priority sectors. The study has clearly brought out the
positive effects of the reform measures on the banking industry in general. The pace
of the reform process is sometimes a cause for concern and criticism. But, there
seems to be a great wisdom in this gradualism.
55
banks and hedge funds, pose new challenges for financial regulators. This is
especially crucial in the context of structural mechanisms that are in place to run the
new financial conglomerates. From a regulatory perspective, the key issue would be
the presence of unregulated entities holding companies in the structure. As is
evident from the recent sub-prime problems originating in the United States, all
financial entities are interdependent and the collapse of any one, not necessarily a
commercial bank, involves a systemic risk and may propel the financial regulator to
save it. In the context of overriding compulsions of financial stability and the
inherent limitations of any external regulation to anticipate all innovative, exotic
derivative products and eliminate the propensity of excessive risk-taking by a bank
financial entity, regulators worldwide, and in India, are placing more and more
responsibility on bank boards. This has entailed, on the part of the board, a better
quantitative understanding of the risks inherent in specific lines of activity and a
clear assessment of possible impact on the financials. In the Indian context, the
Reserve Bank of India (RBI) has put in place detailed regulations related to the
composition of bank boards, the fit and proper criteria for appointment of
directors, transparency and disclosure norms for derivative products, related-party
transactions, risk-based internal audit and other crucial components of banks
corporate governance architecture.
56
Seetharaman A., N.G ,Shreelee, Rajusudha (50 )(2008) conducted study on The
Impact of the mergers of Malaysian banks This study was conducted with
objectives to study the role and consequences of the banks mergers, secondly to
investigate the challenges of bank merger success and its impact to the banking
industry in Malaysia and thirdly, the post merger performance of the local banks
and foreign banks. Mergers and consolidation exercises taking place in Malaysia are
just the beginning of a strategic transformation to enhance and upgrade the quality
of the domestic financial sector to world class status preparing them to embark on
open competition in line with the World Trade Organization (WTO) agenda for
services. The second pressure facing smaller domestic banks is the increasing scale
of the three biggest banks which are leaving most of the smaller banks behind. It is
obvious that the smaller banks missed the window of opportunity to capitalize on
their position as new anchor banks after first wave of consolidation at the turn of the
millennium. In general, this study is aimed to investigate the impact of the merger to
the banking industry as well as the impact of the liberalization of the financial
market in Malaysia. The recent liberalization of foreign bank entry is aiming at
increasing competition and improving efficiency in the domestic banking sector.
Nevertheless, foreign banks entry has had limited impact so far, which may be
because of a period of adjustment for foreign banks a different business profile of
foreign banks or the limited scope of liberalization. Restoring bank profitability
involves cutting expenses through downsizing the labor force reducing branches and
promoting lower cost deposits. Banking institutions were given the liberty to form
their own merger groups and to elect their own leader to lead the merger process.
Approval was granted for the formation of 10 banking groups, each with minimum
shareholders equity of RM 2 billion and an asset base of RM 25 billion. Over a
period of only two years, BNM forced the mergers 58 financial institutions
comprising commercial banks, merchants banks and finance companies into 10
domestic anchor banks groups with 13 foreign banks.
Srivatsa
H.S,
Srinivasan
R. (2009) conducted study on New Age Youth Banking Behavior an
Explorative Study in the Indian Banking Sector
This study finds out that the banking scenario in India has witnessed a rapid growth
coupled with intense competition. This sector has witnessed rapid technological
(51)
57
Sinha Ram Pratap (54) (2007) conducted study on Asset Quality Profile of Indian
Commercial Banks: A Stochastic Frontier Approach The study presents the
impact of factors like banks operating efficiency, capital adequacy ownership and
bank size on the asset quality of the observed commercial banks in terms of a fixed
effect panel data framework. The fixed effect analysis part of the study includes in
addition to the 28 commercial banks included in the Stochastic Frontier Analysis, 2
more private sector commercial banks (the global trust bank and the IDBI bank).The
period of analysis is 2000-01 to 2004-05. The present paper includes a comparative
study of the asset quality profile of the Indian commercial banks for the reform
period. During the reform period, the commercial banking sector has progressed a
lot in respect of adoption of the global best practices in so far as credit risk
management is concerned. From the technical efficiency scores relating to asset
quality, it appears that the public sector commercial banks have out-competed their
private sector counterparts. The econometric results show that operating profit ratio
and capital adequacy are two important determinants of asset quality. However the
58
Sharma Nachiket Mor Bhavna (55) (2003) conducted study on Rooting Out NonPerforming Assets The paper has attempted to provide a more comprehensive
approach to management of NPAs in banks. It is argued that if the goal is to deal
with NPAs (and more generally the health of the financial system) in a definitive
manner and root them out, then it is necessary to first deal with the micro level
issues at the level of each individual intermediary. And, unless these issues are dealt
with prudently, even after the systemic issues are resolved, these problems may
resurface even in economies where on the face of it many of these systemic issues
apparently are not operative. So there is a case to build institutions that are
intrinsically strong and healthy by rooting out those issues that on a continuous
basis create perverse incentive structures. In this light the role of consistent
(consistent in terms of shareholder and regulatory expectations and behavior)
business model to guide the behavior of the bank each of the phases of a credit
process have been discussed. It is argued that the current set of organizational
competencies, the regulatory framework in which the banks operate the quality of
disclosure and the incentive structure of the management and Boards produce an
inconsistent framework, which leads to an unsustainable performance level for a
Bank. In this light, the role of parsimonious but sufficient statistics such as the
Economic Value of Equity (EVE) and EVE at Risk (EVER) has been emphasized. It
is argued that if these measures are mandatory disclosed on a monthly basis, it will
help in making these inconsistencies visible. Infact, EVE and EVER could also
become effective methods by which the regulator could exercise a macro level
control over the banks and could also drive the development of internal
competencies at all levels as Boards, Managements and employees strive to
understand the drivers of these two metrics.
Saumitra and Shanmugam K.R. (56) (2005) conducted study on Indian Banking
Sector- Is it on right Track? In this article the author has discussed that the
banking sector performs reasonably well with respect to the goals set by the
Narasimham Committee, particularly in the context of the poorly performing banks
and showing some encouraging signs to meet the Basel II norms by 2006. However,
one should not go over board to evaluate the success of the Indian banking sector,
particularly from the perspective of a developing economy such as ours. Policymakers should be extra cautious in giving free a reign to the banking sector in
pursuing "profit and risk" based strategies. Recent trends in non-synergy based
consolidation, growing disinclination to lend money towards productive purposes
and to the unprofitable sectors such as agriculture, self-help groups, infrastructure
and to small and medium sized enterprises, its growing engagement in nonproductive treasury operations and conspicuous consumer lending will seriously
impair the role of banks as public instruments of development. Therefore,
59
maintaining a balance between these two objectives will remain a challenge to the
banking sector for some time to come.
60
banks in India are different from the traditional players; these have set the trends in
the usage of technology, better utilization of manpower, along with professional
management adopting corporate governance principle. The success of these private
sector banks made the large traditional banks follow suit by inducing technology to
retain customers profitably. Another feature of the Indian banking sector is mergers
and acquisition and this is likely to continue for few more years. Market force play
important role in compelling these banks to conglomerate and consolidate their
business operations to leverage their competitive abilities.
61
studies (1980s and early 1990s). The results are still mixed, suggesting more
questions than answers. To a large extent the empirical evidence seems to support
the view that smaller banks are more efficient than larger banks in most countries.
The exceptional cases of cost efficiencies reaped by larger banks may be simply due
to sheer size and market power. The pursuit of consolidation and deregulation of the
banking system should therefore be implemented with caution, particularly in
developing banking systems.
Summary
Thus, various researchers have used different methods to analyse the performance of
banking sector. The main features of above given studies are as follows:
Numerous studies on banks to analyze the performance are based on the Data
Envelopment Analysis (DEA) approach as quoted by Ozkan, Tektas, Arzu (2006) a
tool to detect and improve the sources of inefficiency by bank management and
supervisory agents, which shows that
62
The analysis using this technique further revealed that there is no definite relationship
between efficiency and size of banks. The studies also show that technically more
efficient banks are those that have on average less non performing loans. The
composition of NPAs reveal that NPAs connected to non-priority sector has
increased, whereas, NPAs connected to priority sector advances exhibited a decline.
Further the cost competence of banks determine that wide spread ownership through
stock exchange testing were found to be more cost efficient and state authorized
bank to be less cost efficient.
This method of analysis is not free from discrepancies like results are sensitive to the
selection of inputs and outputs. The most importantly results are potentially sensitive
to the selection of inputs and outputs, so their relative importance needs to be
analyzed prior to the calculation. However, there is no way to test their
appropriateness. The number of efficient firms on the frontier tends to increase with
the number of inputs and output variables. When there is no relationship between
explanatory factors (within inputs and/or within outputs), DEA views each company
as unique and fully efficient and efficient scores are very close to 1, which results in a
loss of discriminatory power of the method.
Another method most comprehensively used is the CAMEL Model. The acronym
"CAMEL" refers to the five components of a bank's condition that are assessed:
Capital adequacy, Asset quality, Management, Earnings, and Liquidity. A sixth
component, a bank's Sensitivity to market risk was added in 1997; hence the acronym
was changed to CAMELS. An overall rating of 1 is best while a rating of 5 implies
a bank being laden with existing or potential problems. Learned optimism
demonstrate significant role in the efficiency of the people. It provides high energy
level and stress tolerance which help people cope with the hectic pace and unrelenting
demand of the managerial jobs, frequent role conflicts the pressure to make important
decision without adequate information.
Further, the reforms in the banking sector has made environment more competitive in
order to retain and widen customer base and enhance quality of its personnel for
further development. Moreover the studies also show that fixed assets and net worth
are highly correlated.
subjectivity and even inconsistency. As most bank analysts and examiners will
acknowledge, there are instances when an examination of the accounting records
cannot decide whether to give an average or below average score. The good and
63
bad indicators are easy to spot, but not so the in-betweens. This is a problem of
indeterminacy, but when bank inspectors are forced to make a judgment, then it leads
to the second problem of subjectivity and where human minds are at work, they come
with differing levels of expectations and perspectives
Finally, it was analyzed that in case of Indian Commercial banks, Data Envelopment
Analysis (DEA) and CAMELS Model are practiced to assess the effectiveness of
banking sector which is not secluded from various discrepancies. Therefore there was
a need to analyze the comparative performance of banking sector, considering public
sector and private sector banks in India. This study is an attempt to analyze the
comparative performance of public sector and private sector banks in India. Thus, the
present study is the departure of the earlier reviewed studies.
64
CHAPTER-3
Introduction
The banking scenario in India has already gained the momentum, with the domestic
and international banks gathering pace. All the banks in India have shifted their focus
to cost determined by revenue minus profit. This means that all the resources should
be used efficiently to improve the productivity and ensure a win-win situation. To
survive in the long run, it is essential to focus on cost saving. Previously, banks
focused on the 'revenue' model which is equal to cost plus profit. After the
introduction of banking reforms, banks shifted their approach to the 'profit' model,
which means that banks aimed at profit maximization, therefore, there is the need to
discuss this issue in detail. Thus, this Chapter analyses the individual performance of
private sector and public sector banks undertaken for the study.
3.2 Performance of Private Sector Banks
The existence and success of banks depend on their ability to meet the various needs
and wants of the customers. The new millennium has brought with it challenges as
well as opportunities in various fields of economic activities including banking.
Private Banks have played a major role in the development of the Indian banking
Sector. Private sector Banks undertaken for the study are: Axis Bank, South Indian Bank
Ltd., Bharat Overseas Bank Ltd., Dhanalakshmi Bank Ltd., HDFC Bank Ltd., ICICI Bank
Ltd, Jammu & Kashmir Bank Ltd., Yes Bank, Bank of Rajasthan, Kotak Mahindra bank.
To analyze the profitability of the bank multiple statistics is applied which helps to
examine the relationship between various variables. The profitability of the bank is
considered dependent on the returns liquidity, asset and capital adequacy of the banks.
The profitability is analysed from year 1991-1992 to 2008-2009. The various
independent variables taken are: returns, assets, liquidity and capital adequacy.
65
is explained by the combined effect of independent variables. It may be seen that the
required coefficient of variables are significant at 1% level of significance. It is
concluded that coefficient of determination is very high. The DW values in the study
are not significant at 1% level of significance, signifying that it is rather reasonable to
assume the absence of multi co linearity
66
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
PBDITA Net of P&E/Total
Income Net of P&E
PBDPTA Net of P&E/Total
Income net of P&E
PBT Net of P&E/Total Income
Net of P&E
R
1.000
1.000
0.978
1.000
R
Square
1.000
1.000
0.976
1.000
Adjusted
R Square
-
Std. Error
of the
Estimate
-
0.999
0.999
2.799
1.000
1.000
2.762
0.957
0.946
2.737
1.000
1.000
2.638
DurbinWatson
2.719
2.774
2.700
2.502
Rajasthan
having
specialized
forex
and
Industrial
finance
branches.
67
Profitability:
Table-3.2 shows the negative relationship between profitability and return, assets,
liquidity, capital adequacy. During 1999, when most banks showed a drop in profits,
Bank of Rajasthan (BoR) registered a turnaround with a meager net profit of Rs 3.99
crore. Non-performing assets (NPAs) of the bank are at 9.5 per cent of its advances
valued at Rs 359 crore. Therefore low performance of the bank was largely due to
management problems.
Bank of Rajasthans Net Non-performing loans as a percentage of loans marginally
rose to 0.73% in 2009 from 0.42% a year ago. The promoter groups holding in June
stood at 30.54%. Under RBI norms, the promoters are required to pare their holding
to 10% in a bank. RBI norms persist that the minimum net worth or equity and
reserves of a bank should be Rs300 crore. The banks net worth is Rs643.47 crore.
R
Square
Adjusted R
Square
Std. Error of
the Estimate
DurbinWatson
PBDITA/Total Income
1.000
1.000
2.716
PBDPTA/Total Income
.999
.999
3.376
PBT/Total Income
1.000
1.000
3.368
PAT/Total Income
1.000
1.000
2.716
.947
.946
3.203
1.000
1.000
3.234
.986
.978
3.115
1.000
1.000
3.314
68
Infact, RBI has not given any fresh branch license to the bank in the recent past. Bank
of Rajasthan has also not appointed a chairman since August 2004 when RBI refused
to renew the tenure of P.K. Tayal, its promoter, as non-executive chairman. The bad
loans accompanied by management problems led to erosion of the bottom line. This
was due to previous promoter group companies have defaulted on loans worth over
Rs 50 crore and the bank has filed criminal cases against them.
The analysis also shows that the value of coefficient of multiple determination (
) is
quite high. The analysis revealed that about 94%-100% of variation in profitability is
explained by the combined effect of independent variables. It may be seen from the
table that the required coefficient of variables are significant at 1% level of
significance. It is concluded that coefficient of determination is very high. It may be
seen from tables that DW values in the study are not significant at 1% level of
significance, signifying that it is rather reasonable to assume the absence of
multicollinearity.
3.2.3 BHARAT OVERSEAS BANK
Bharat Overseas Bank, Chennai-based Indian private sector bank has a unique history.
Established to take over from Indian Overseas Bank's Bangkok branch, in Thailand in
1973, it is the only private bank permitted by the Reserve Bank of India to have a
branch outside the country. Bharat Overseas Bank has been promoted by seven banks,
and is the only bank to represent India in Thailand, serving the Indian ethnic business
community for over 25 years.
Profitability:
It is seen from the Table-3.3 that the negative relationship between profitability and
return, assets, liquidity, capital adequacy. The Net NPAs of Bharat Overseas Bank
had risen to 4.38% during the year 2001-2002. In fact the poor performance of the
steel and textile sectors was the reasons for the increase in NPAs during the year
2001-02.
69
R
Square
DurbinWatson
.986
.987
3.003
1.000
1.000
2.936
1.000
.999
1.000
.999
2.831
3.356
1.000
1.000
2.925
.975
.965
3.101
.984
.975
2.897
PAT Net of
P&E/Total Income Net
of P&E
1.000
1.000
3.394
PBDPTA/Total
Income
PBT/Total Income
PAT/Total Income
PBDITA Net of
P&E/Total Income Net
of P&E
PBDPTA Net of
P&E/Total Income Net
of P&E
Its return on assets has been significantly below 1 per cent when other banks have
managed better. The reason for poor performance is due to rise in interest rates. The
value of coefficient of multiple determination (
70
R
Square
.999
.999
.998
.998
Adjusted R
Square
.980
.983
.965
.977
Std. Error of
the Estimate
1.28875
.70364
1.24845
.70673
DurbinWatson
3.087
3.087
3.087
3.087
.999
.999
.984
1.16490
3.087
1.000
.999
.988
.59659
3.087
.999
.998
.972
1.14167
3.087
.999
.999
.984
.59786
3.087
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
PBDITA Net of P&E/Total
Income Net of P&E
PBDPTA Net of P&E/Total
Income Net of P&E
71
Dhanalakshmi Bank Ltd, recently under the glare of the banking regulator, are
restructuring their organizations to become more efficient, as it needs to improve its
capital base to cater more services to the investors. Dhanalakshmi, too, has gone on a
hiring spree. The bank has also introduced employees stock ownership plans,
The analyses further reveal that value of coefficient of multiple determination (
) is
quite high. It is also found that about 99% of variation in profitability is explained by
the combined effect of independent variables. It may be seen from the analyses that
the required coefficient of variables is significant at 1% level of significance. It may
be seen that coefficient of determination is very high. It may also be seen from the
analyses that DW values in the study are not significant at 1% level of significance,
signifying that it is rather reasonable to assume the absence of multicollinearity.
72
Dependent variables
Adjusted
of the
Durbin-
Square
R Square
Estimate
Watson
PBDITA/Total Income
.970
.941
.822
.73953
2.364
PBDPTA/Total Income
.996
.992
.975
.98677
2.166
PBT/Total Income
.998
.996
.987
.80434
2.281
PAT/Total Income
.997
.995
.984
.71806
2.376
.970
.940
.821
.73902
2.364
.995
.991
.972
1.02271
2.181
.998
.995
.985
.84374
2.290
.997
.993
.980
.76565
2.389
73
) is
quite high. The analysis reveals that about 100% of variation in profitability is
explained by the combined effect of independent variables. It may be seen from the
analyses that the required coefficients of variables are significant at 1% level of
significance.
74
Dependent variables
Adjusted
of the
Durbin-
Square
R Square
Estimate
Watson
PBDITA/Total Income
1.000
1.000
3.225
PBDPTA/Total Income
1.000
1.000
3.395
.943
.999
.976
.989
3.372
3.384
1.000
1.000
3.094
1.000
1.000
3.407
.989
.978
3.395
1.000
1.000
3.369
PBT/Total Income
PAT/Total Income
PBDITA Net of
P&E/Total Income Net of
P&E
PBDPTA Net of
P&E/Total Income Net of
P&E
PBT Net of P&E/Total
Income net of P&E
PAT Net of P&E/Total
Income Net of P&E
It may be seen that coefficient of determination is very high. The DW values in the
study are not significant at 1% level of significance, signifying that it is rather
reasonable to assume the absence of multicollinearity.
3.2.7 KOTAK MAHINDRA BANK
Kotak Mahindra group is a financial organization established in 1985 in India. It was
previously known as the Kotak Mahindra Finance Limited, a non-banking financial
company. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship
company was given the license to carry on banking business by the Reserve Bank of
India (RBI). Kotak Mahindra Finance Ltd. is the first company in the Indian banking
history to convert to a bank
75
Profitability:
Table-3.7 shows the negative relationship between profitability and return, assets,
liquidity, capital adequacy. Kotak Mahindra Bank has witnessed a rise of 92 percent
of non- performing assets over last few years. The source for rise in NPAs has been
due to the unsecured loan segment that comprises primarily of credit cards and
personal loans. NPA as a percentage of total assets has gone up from 1.1 per cent in
December 2007 to 2.7 per cent in December 2008. It was basically because of the
NPAs from other banks that Kotak Mahindra has bought for asset reconstruction
business.
Table-3.7 Multiple Regression Analysis of Kotak Mahindra Bank
Dependent variables
R
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
R Square
Adjusted R
Durbin-
Square
Estimate
Watson
.998
.996
.974
2.72979
3.015
.998
.996
.974
3.10809
3.120
.996
.992
.953
3.06996
3.136
.997
.994
.964
2.44457
3.127
.994
.989
.933
3.11333
3.142
.998
.996
.975
3.01539
3.110
.996
.993
.956
2.94390
3.132
.997
.994
.966
2.35972
3.105
Net of P&E
76
However, a sharp decline in the equity markets impacted the profitability of the
brokerage, investment banking and the asset management businesses. The banks net
profit in 2009 fell by 12 per cent to Rs 211 crore (Rs 240 crore). In the 2009, the
consolidated net profit fell by 34 per cent to Rs 652 crore (Rs 991 crore).
Further, it is seen that the value of coefficient of multiple determination (
) is quite
high. The analysis revealed that about 99% of variation in profitability is explained by
the combined effect of independent variables. It may be seen from the analyses that
the required coefficients of variables are significant at 1% level of significance. It may
be seen that coefficient of determination is very high. Further, it may be seen from
the analyses that DW values in the study are not significant at 1% level of
significance, signifying that it is rather reasonable to assume the absence of
multicollinearity.
Table-3.8 shows the negative relationship between profitability and return, assets,
liquidity, capital adequacy. The negative relation is due to the banks conservative
approach for business. However, capital and reserves of the Bank have increased from
Rs1.77 crore as on 31-03-1997 to Rs4.29 crore as on 31-03-1999 (capital was
Rs478mn). This has happened largely due to the developing new products, improving
customer services and augmenting capital base. The bank is the banker to the J&K
77
government and the Centre (for its business activities in the state). As a result, all
Central and state funding for projects in J&K is routed through the bank; the
governments also extend guarantees for these projects. This gives J&K Bank huge
captive business, a large fund float and keeps its NPAs low. Out of gross NPA of
around Rs2.43bn, 25-30% was in the priority sector. Remaining Rs1.25bn was
distributed across other sectors in 2005.
Further, the value of coefficient of multiple determination (
R
Square
1.000
.998
Adjusted R
Square
.999
.997
Std. Error of
the Estimate
.32484
.20988
DurbinWatson
3.294
3.294
1.000
1.000
1.000
.03067
3.294
1.000
1.000
1.000
.01500
3.294
.999
.986
.999
.34721
3.294
.999
.999
.994
.30116
3.294
1.000
1.000
1.000
.12921
3.294
1.000
1.000
1.000
.12305
3.294
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
78
R
Square
.975
1.000
.999
1.000
Adjusted R
Square
-
Std. Error of
the Estimate
-
DurbinWatson
2.591
3.063
3.234
3.263
1.000
1.000
3.080
.989
.965
2.991
1.000
1.000
3.226
PAT net of
P&E/Total income net
of P&E
.999
.999
2.959
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
PBDITA Net of
P&E/Total Income Net
of P&E
PBDPTA Net of
P&E/Total Income Net
of P&E
79
Further, the analysis also reveals that bank has also found it difficult to generate
reasonable returns on its deployments. The net interest margin has been below 3 per
cent for most of the past five years. With interest rates also rising since May 2004,
profitability has come under stress in the backdrop of poor margins and the pressure
on the bad loans front. South Indian Bank has been overwhelmed by these challenges.
For the first time in many years, it did not declare dividends for the year-ended March
2005. Further the level of NPAs has been constantly rising
The analyses also shows that the value of coefficient of multiple determination (
) is
quite high. The analysis revealed that about 96%-100% of variation in profitability is
explained by the combined effect of independent variables. It may be seen that the
required coefficient of variables are significant at 1% level of significance. It is also
found that coefficient of determination is very high. Further, it may be seen from the
analyses that DW values in the study are not significant at 1% level of significance,
signifying that it is rather reasonable to assume the absence of multicollinearity.
3.2.10 YES BANK
Yes Bank is the only Greenfield license awarded by the RBI in the last 14 years,
associated with the finest pedigree investors. Yes Bank has fructified into a full
service commercial Bank that has steadily built Corporate and Institutional Banking,
Financial Markets, Investment Banking, Corporate Finance, Business and Transaction
Banking, Retail and Wealth Management business lines across the country, and is
well equipped to offer a range of products and services to corporate and retail
customers.
Profitability:
Table-3.10 shows the negative relationship between profitability return, assets,
liquidity and capital adequacy. The negative relationship is due to effect on the
liquidity because of the global meltdown in the economy during 2008. Further, the
non-interest income during
expenses had not grown in line with the bottom-line growth, i.e. 45.7 per cent increase
in operating expenses to Rs 129.5 crore from Rs 88.9 crore. The bank has made a loan
loss provision of Rs 41.2 crore for December 2008.
80
Dependent variables
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
PBDITA Net of
P&E/Total Income Net
of P&E
PBDPTA Net of
P&E/Total Income Net
of P&E
PBT Net of P&E/Total
Income Net of P&E
R
1.000
.999
1.000
.976
R
Square
1.000
.970
1.000
.986
Adjusted
R Square
-
Std. Error of
the Estimate
-
DurbinWatson
1.495
2.276
2.768
1.141
1.000
1.000
2.147
1.000
1.000
2.149
.999
.954
1.696
1.000
1.000
2.266
81
Bank of Baroda one of the oldest Banks established in Baroda in Gujarat was founded
in 1908 in a small town - Baroda - by the great visionary the late Maharaja of Baroda
- Sir Sayajirao Gaekwad-III. Bank has grown, over the years, to emerge as an Indian
Financial Powerhouse, with a network of branches in India and also foreign countries.
After raising Rs.300 crore through a bond issue in 1995, the bank tapped the capital
market with an initial public offering of Rs.850 crore in 1996. Bank is having major
shareholding of Government of India.
Profitability:
Table-3.11 shows the negative relationship between profitability and return, assets,
liquidity, capital adequacy. The reason for the instability and negative correlation in
the specifics of Bank of Baroda is the change in the policy reforms which lead to less
returns in 1993, 1996, 2001, this affected the liquidity.
Further, Bank of Barodas cost of deposits came down steadily from 7.73 per cent
during the financial year 1997-98 to 6.96 per cent (on a fortnightly average basis)
during the financial year 2000-2001, in line with the decline in interest rates in the
economy.
82
R
.999
.999
.999
1.000
R
Square
.998
.999
.999
.999
Adjusted R
Square
.968
.973
.978
.988
Std. Error of
the Estimate
.98514
.84595
.86518
.37808
DurbinWatson
3.083
3.083
3.083
3.083
.999
.998
.971
.94971
3.083
.999
.998
.969
.87165
3.083
.999
.999
.975
.88637
3.083
1.000
.999
.985
.40221
3.083
83
PAT net
84
PBDITA/Total Income
PBDPTA/Total Income
R
1.000
.999
PBT/Total Income
PAT/Total Income
.999
1.000
R
Squar
e
.999
.997
.999
1.000
1.000
.999
.996
.80056
3.231
.999
.998
.986
.91463
2.114
.999
.999
.993
1.26155
1.983
1.000
1.000
.999
.44257
1.940
Adjusted
R Square
.996
.984
.993
.999
Std. Error
of the
Estimate
.80387
.94896
1.30665
.47565
DurbinWatson
3.250
2.110
1.985
1.902
It may be seen from the analyses that the required coefficient of variables is
significant at 1% level of significance. It may be seen that coefficient of determination
is very high. The DW values in the study are not significant at 1% level of
significance, signifying that it is rather reasonable to assume the absence of
multicollinearity.
3.3.3 Bank of Maharashtra
Bank of Maharashtra is an Indian bank based in the city of Pune. The bank got
nationalized by the Government of India in the year 1969. With a total number of
1421 branches located all over India as of April 2009. The Bank is a Government of
India undertaking and carries on all types of banking business.
85
Profitability:
Table-3.13 shows the negative relationship between profitability and return, assets,
liquidity, capital adequacy. As stipulated by the Reserve Bank of India, banks were
required to attain capital adequacy ratio of 8 per cent by 31 March 1996. Since quite a
few public sector banks were not fulfilling this requirement, Government of India had
to infuse fresh capital in all the public sector banks and Bank of Maharashtra was
amongst them. The capital infusion was through issuance of bonds carrying fixed
coupon rates initially at the rate of 7.75 per cent per annum which, in subsequent
issues, was raised to 10 per cent.
R
Adjusted
Square R Square
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
PBDITA Net of P&E/Total
Income Net of P&E
PBDPTA Net of P&E/Total
Income Net of P&E
.999
1.000
1.000
1.000
.999
.998
1.000
1.000
1.000
.998
DurbinWatson
.972
.994
.996
1.000
.972
Std. Error
of the
Estimate
2.63104
.79214
1.26690
.07455
2.60965
3.099
3.099
3.099
3.099
3.099
1.000 1.000
.995
.75669
3.099
.999
.996
1.30634
3.099
1.000 1.000
1.000
.12557
3.099
.999
86
the working of the bank and some of the major deficiencies in the banks as observed
by them were as follows: a) Comparatively lower resource base and lower volume of
business (fund and non-fund based) resulting in lower income generation. b) High
proportion of NPAs and high rate of NPA generation. c) Increasing administrative
expenses not commensurate with the level of business and income. d) Overstaffing e)
Absence of strategic planning, MIS, risk management and internal controls f)
Unremunerative operations of overseas branches and subsidiaries
The value of coefficient of multiple determination (
Profitability:
Table-3.14 shows the negative relationship between profitability and return, assets,
liquidity, capital adequacy. The reason for the negative relationship amongst the
dependent and independent variable is due to the rise in NPAs of bank in the year
1996-1997, had net NPAs of between Rs 1,100 crore to Rs 1,700 crore. RBI in
87
consultation with the Government of India appointed consultants for the banks KPMG
Peat Marwick. Central Bank of India came out of the red in 1996-97 with a net profit
of Rs. 150.83 crore. The banks interest spread to working funds increased from 2.65
per cent in 1994-95 to 3.21 per cent in 1996-97.
Table-3.14 Multiple Regression Analysis of Central Bank of India
Dependent variables
R
1.000
1.000
.999
1.000
R
Square
1.000
1.000
.975
1.000
Adjusted
R Square
-
Std. Error
of the
Estimate
-
1.000
1.000
2.809
.998
.994
2.721
1.000
1.000
2.788
1.000
1.000
2.768
PBDITA/Total Income
PBDPTA/Total Income
PBT/Total Income
PAT/Total Income
PBDITA Net of P&E/Total
Income Net of P&E
PBDPTA Net of P&E/Total
Income Net of P&E
DurbinWatson
2.795
2.753
2.789
2.781
The analyses revealed some of the major deficiencies in the bank as observed were as
follows: a) Comparatively lower resource base and lower volume of business (fund
and non-fund based) resulting in lower income generation. b) High proportion of
NPAs and high rate of NPA generation. c) Increasing administrative expenses not
commensurate with the level of business and income. d) Overstaffing e) Absence of
strategic planning, MIS, risk management and internal controls f) Unremunerative
operations of overseas branches and subsidiaries.
The bank received a capital infusion of Rs 1,555 crore in 2008-09. Out of this, Rs 700
crore came from the government, which is the majority shareholder with an 80%
stake. The rest of the fund came from selling government bonds of Rs 855 crore and
increasing its capital adequacy ratio (CAR) to 13.12%, , which is higher than the
benchmark of 12% for banks in India. Encouraged with this higher CAR, the bank is
88
now planning to push for its long-pending foray into the international markets, which
earlier didnt find favor with RBI due to lower capital adequacy.
The analyses shows that the value of coefficient of multiple determination (
) is
quite high. The analysis revealed that about 100% of variation in profitability is
explained by the combined effect of independent variables. It may be seen from the
analyses that the required coefficients of variables are significant at 1% level of
significance. It may be seen from the analysis that coefficient of determination is very
high. Further, it may be seen from the analyses that DW values in the study are not
significant at 1% level of significance, signifying that it is rather reasonable to assume
the absence of multicollinearity.
89
UCO bank was identified by RBI in consultation with government of India as bank
having operating losses. The major deficiencies in the banks as observed by them
were as follows: a) Comparatively lower resource base and lower volume of business
(fund and non-fund based) resulting in lower income generation. b) High proportion
of NPAs and high rate of NPA generation c) Increasing administrative expenses not
commensurate with the level of business and income d) Overstaffing (estimated at
around 20 per cent in UCO Bank) e) Absence of strategic planning, MIS, risk
management and internal controls f) Unremunerative operations of overseas branches
and subsidiaries.
Table-3.15 Multiple Regression Analysis of UCO Bank
Dependent variables
R
Adjusted R
Durbin-
Square
Square
Estimate
Watson
PBDITA/Total Income
1.000
.999
.995
.87944
3.275
PBDPTA/Total Income
.999
.998
.987
1.22271
2.818
PBT/Total Income
1.000
1.000
.999
.52959
2.779
PAT/Total Income
1.000
1.000
.999
.50018
2.795
1.000
.999
.995
.84397
3.241
.999
.999
.989
1.13791
2.892
1.000
1.000
.999
.43646
2.994
1.000
1.000
.999
.41912
3.049
90
Further, the study shows that the value of coefficient of multiple determination (
is quite high. The analysis revealed that about 99%-100% of variation in profitability
is explained by the combined effect of independent variables. It may be seen from the
analyses that the required coefficient of variables is significant at 1% level of
significance. It may be seen that coefficient of determination is very high. Further, it
may be seen from the analyses that DW values in the study are not significant at 1%
level of significance, signifying that it is rather reasonable to assume the absence of
multicollinearity.
) is
quite high. The analysis revealed that about 97%-100% of variation in profitability is
explained by the combined effect of independent variables. It may be seen from the
91
tables presented that the required coefficient of variables are significant at 1% level of
significance.
Table-3.16 Multiple Regression Analysis United Bank of India
Dependent variables
R
Adjusted R
Std. Error of
Durbin-
Square
Square
the Estimate
Watson
PBDITA/Total Income
1.000
1.000
3.110
PBDPTA/Total Income
.999
.986
3.037
PBT/Total Income
1.000
1.000
2.884
PAT/Total Income
.986
.999
3.021
1.000
1.000
3.123
.980
.974
3.051
.999
.978
3.245
1.000
1.000
2.951
PBDITA Net of
P&E/Total Income Net of
P&E
PBDPTA Net of
P&E/Total Income Net of
P&E
PBT Net of P&E/Total
Income Net of P&E
PAT Net of P&E/Total
Income Net of P&E
It is concluded that coefficient of determination is very high. It may also be seen from
tables that DW values in the study are not significant at 1% level of significance,
meaning that it is rather reasonable to assume the absence of multicollinearity.
92
Profitability:
Table-3.17 shows the negative relationship between profitability, returns, assets,
liquidity and capital adequacy. NPAs are not an exception to Vijaya Bank alone, more
particularly marked by recessionary pressures. The rise in the NPA level was on
expected lines. The addition has been on account of very few large accounts, inspite
the bank made all efforts to turn those around. Otherwise, NPA level in sectors like
agriculture, education loans etc are quite reasonable and manageable.
Dependent variables
R
Adjusted R
Std. Error of
Durbin-
Square
Square
the Estimate
Watson
PBDITA/Total Income
.928
.968
2.918
PBDPTA/Total Income
1.000
1.000
3.088
PBT/Total Income
.999
.989
2.713
PAT/Total Income
.998
.967
2.473
1.000
1.000
2.930
.989
.999
3.092
.957
.998
2.698
1.000
1.000
2.991
Further, the analysis shows that the value of coefficient of multiple determination
(
) is quite high. The analysis revealed that about 100% of variation in profitability
is explained by the combined effect of independent variables. It may be seen from the
93
NPAs are a reflection of the performance of the banks. A larger level of NPA loans is
an indicative of an ailing banking sector. Punjab National Bank (PNB) is in talks with
Asset Reconstruction Company of India Ltd (Arcil) to shed some of its nonperforming assets (NPAs) through this route. The bank is looking to pare its NPAs to
one per cent of advances by end March 2008 from the level of 1.33 per cent as on
end-December 2007.
94
Std. Error
Adjusted
of the
Durbin-
Square
R Square
Estimate
Watson
PBDITA/Total Income
.638
.408
.362
3.94016
1.387
PBDPTA/Total Income
1.000
1.000
2.930
PBT/Total Income
1.000
1.000
2.838
PAT/Total Income
1.000
1.000
2.819
1.000
1.000
3.197
1.000
1.000
3.003
1.000
1.000
2.940
1.000
1.000
2.979
It can be seen from the analysis that the value of coefficient of multiple determination
(
multiple determinations is 40%. This was due to bad debts on agricultural loans. The
analysis revealed that about 100% of variation in profitability is explained by the
combined effect of remaining independent variables. It may be seen from the analyses
that the required coefficients of variables are significant at 1% level of significance
and the coefficient of determination is very high. Further, it may also be seen from
analyses that DW values in the study are not significant at 1% level of significance,
meaning that it is rather reasonable to assume the absence of multicollinearity.
95
) is very high. It also found out that about 94%-100% of variation in profitability
96
Adjusted R
Std. Error of
Durbin-
Square
Square
the Estimate
Watson
PBDITA/Total Income
1.000
1.000
2.647
PBDPTA/Total Income
.999
.947
2.852
PBT/Total Income
1.000
1.000
2.527
PAT/Total Income
.999
.975
2.408
.999
.983
2.472
1.000
1.000
2.869
2.480
2.362
PBDITA Net of
P&E/Total Income Net of
P&E
PBDPTA Net of
P&E/Total Income Net of
P&E
PBT Net of P&E/Total
Income Net of P&E
.999
.986
1.000
1.000
97
beginning from 1996-97 were Rs 930 crore, Rs 1,113 crore, Rs 830 crore and Rs
1,154 crore, respectively . SBI was inspected during 1996-97 by the RBI almost after
a gap of two years. As in March 1994, the bank had calculated its NPAs at Rs 11,596
crore while the RBI had estimated it at Rs 12,064.13 crore. In 1994, the RBI had also
asked the bank to hike its provisioning by Rs 369.84 crore i.e. from Rs 4,837.69 crore
to Rs 5,207.53 crore during the year.
Another challenge which the bank is tackling is the headcounts. The bank plans to up
its headcount by 13,000 this fiscal,. The bank has 2,05,000 employees and around
8,000 personnel retire every year.. India's largest lender, State Bank of India, has
identified its key challenges to be meeting capital requirements, bringing the cost-toincome ratio under control, and absorbing new recruits. Meeting capital requirements
is a challenge for the bank. SBI needs to raise additional capital for funding balance
sheet growth, subsidiaries and acquisitions. Further, it can be seen from the analysis
that the value of coefficient of multiple determination (
) is quite high.
Std. Error
Adjusted
of the
Durbin-
Square
R Square
Estimate
Watson
PBDITA/Total Income
.999
.998
.979
.81374
3.130
PBDPTA/Total Income
.999
.997
.977
.66524
2.931
PBT/Total Income
1.000
1.000
.997
.34086
2.990
PAT/Total Income
1.000
1.000
1.000
.03947
3.314
.998
.995
.955
1.19238
2.579
.998
.996
.960
.84250
2.692
1.000
.999
.993
.50107
2.729
1.000
1.000
.997
.19114
2.663
The analysis revealed that about 99%- 100% of variation in profitability is explained
by the combined effect of independent variables. It may be seen from the analyses
98
3.4 Summary
The present study covers the individual performance of private sector and public
sector banks in India from 1991-1992 to 2008-2009. The study has considered various
parameters like returns, assets, liquidity and capital adequacy which have affected the
profitability of the banks.
The various private sector banks undertaken for the study are Axis Bank, South Indian
Bank Ltd., Bharat Overseas Bank Ltd., Dhanalakshmi Bank Ltd., HDFC Bank Ltd., ICICI
Bank Ltd, Jammu & Kashmir Bank Ltd., Yes Bank, Bank of Rajasthan, Kotak Mahindra
bank. Bank of Rajasthan has faced the problem of Non-Performing Assets (NPAs)
basically due to the management problems. Bharat overseas Banks NPAs are high due to
the fluctuations in the steel and textiles sectors. However, HDFC Banks NPAs are fairly
fewer because of the conformist approach of the bank. Another bank with conservative
approach is Jammu & Kashmir Bank. The bank is the banker to the government of J&K,
and it helps to fund the central and state projects. This gives immense business to the bank
and keeps the NPAs low.
Further, Dhanalakshmi Banks cost of operation has increased due to the introduction of
employee stock ownership plans or ESOPs. It was also recommended by RBI to the bank
to improve its capital base for better operations. In addition, the turmoil in the global
banking industry in year 2008 had a great impact on the business of all the private sector
banks.
The Public Sector banks undertaken for the study are Bank of Baroda, Bank of India,
Central Bank of India, Punjab & Sind Bank, State Bank of India, UCO Bank, United Bank
of India, Vijaya Bank, Bank of Maharashtra and Punjab National Bank. The analysis
revealed that banks like Central Bank of India, UCO Bank, United Bank of India and Bank
of Maharashtra have faced lack of capital. These banks also faced the problem of
overstaffing and NPAs .However, State Bank of India and Vijaya bank are facing the
99
problem of shortage of headcounts. Further, major public sector banks are not technology
receptive which has been affecting the business of banks.
100
CHAPTER-4
COMPARATIVE ANALYSIS OF PRIVATE SECTOR
AND PUBLIC SECTOR BANKS
4.1 Introduction
India's public sector enterprises, in general, tend to be unfavourably compared with
their
private
sector
counterparts.
Apart
from
ideological
and
theoretical
considerations, it is such comparisons that provide much of the impetus for the current
privatization drive in India. While public sector banks (PSBs) are not yet candidates
for privatization- the objective at present is merely to lower the government's holdings
to 33 per cent, there is a section that would favour a push towards privatization at
PSBs as well, based on their perceived inefficiency relative to the private sector. At
least in the popular debate, such perceptions rest on conventional financial indicators
of performance. Therefore in this study, an attempt has been made to compare the
performance of private sector and public sector banks. The comparative analysis of
private sector and public sector banks is done on the basis of profitability, liquidity,
returns, capital adequacy, and asset utilization. This chapter also covers the trend of
ratios.
101
The independent samplest test analysis shown in Table- 4.1 indicates that mean,
standard deviation for the private sector and public sector banks. The values of t
shown in Table-4.1 in the case of PBDITA/Total incomes(0.380), PBDPTA/Total
incomes(6.035), PBT/ Total Income (7.208), PAT/ Total Income(6.610), PBDPTA
net of P&E/Total Income net of P&E( 6.932) shows that the significance level of 5%
of confidence. However the variables PBDITA net of P&E/ Total income net of
P&E(-.649), PBT net of P&E/Total Income Net of P&E (7.858) and PAT Net of
P&E/ Total Income net of P&E (7.314 ) does not show the 5% of significance level.
The reasons for not being on significant level for the variables PBDITA net of P&E/
Total income net of P&E, PBT net of P&E/Total Income Net of P&E and PAT Net of
P&E/ Total Income net of P&E is due to the negative results in the period 1993-1997
in the public sector banks like UCO Bank, United Bank of India, Punjab and Sind
Bank, Bank of India. This was basically due to change in the reforms introduced and
increasing level of NPAs in these banks which has lead to the difference in the
profitability of the public sector and private sector banks. The other factor which also
affected the profitability was due to overstaffing in these banks. The other factor
which played the important role in effecting the profitability is the global economic
environment. Further, the other factor is the market fluctuations during the year 2008,
giving a bad impact on the overall economy and affecting the profitability of the bank.
102
Profitability Ratios
Std.
Banks
PBDITA/Total incomes
Private
Public
Mean
Deviation
150
64.5978
24.12717
169
63.8087
11.41318
23.3960
12.07814
169
16.0627
9.59208
150
15.0947
11.01096
169
4.2389
15.25215
150
11.1813
9.02118
169
2.2719
14.14918
150
62.1027
28.14908
169
63.6322
11.42256
150
22.8158
9.03406
169
15.5575
9.59217
150
16.4538
13.70264
169
3.6647
15.18902
150
11.8797
10.24913
169
1.6807
14.08544
Sig.
.380
.000
6.035
.555
PBDPTA/Total incomes
Private
Public
PBT/Total income
Private
Public
PAT/Total income
Private
Public
Private
Public
Private
Public
Private
Public
Private
Public
150
7.208
6.610
.432
.152
-.649
.000
6.932
.305
7.858
.719
7.314
.479
103
104
105
Chart- 4.1 shows the profitability ratio- PBDITA/Total Income of private sector
banks from 1991-92 to 2008-09. The chart reveals Axis Banks fluctuating trend
from 66.03%, March 1995 to 73.29%, March 2009. The fluctuations were due to the
sharp increase in the percentage of Non Performing Assets (NPAs). Bank of
Rajasthan has shown the slight increase from 8.02%, March 1993 to 13.59%, March
2009. This was due to the unstable top management which even further led to sharp
increase in Non- Performing Assets. Bharat Overseas Bank Ltd. has revealed the
slight improvement in this ratio from 60.49%, March 1994 to 63.75%, March 2009
due to the rise in interest rates. Dhanalakshmi Bank also indicates improvement in
trend from 65.05%, March 1995 to 76.35%, March 2009.
Further, HDFC bank reveals more stable trend in maintaining this ratio from 92.46%,
March 1991 to 94.09%, March 2009. This stability is maintained because of its
conservative approach in operations. It is seen from the chart-4.1 ICICI Banks
fluctuating trend from 57.24%, March 1995 to 73.16%, March 2009. The variations
were due to global meltdown. Jammu & Kashmir Bank Ltd. has indicated
improvement from 57.37%, March 1993 to 81.33%, March 2009.It is due to increase
in capital and reserves of the bank. Kotak Mahindra Bank has shown the negative
trend therefore its ratio declined from 78.65%, March 1991 to 21.19%, March 2009.
This is due to sharp rise in NPAs of the bank. South Indian Bank Ltd. has exposed
optimistic trend from 69.55%, March 1995 to 79.14%, March 2009. It is due to high
deposit growth rates. Yes Bank Ltd. has shown tremendous performance from
15.65%, March 2005 to 80.95%, March 2009.
Chart-4.2 indicates public sector banks profitability ratio PBDITA/Total Income.
Bank of Baroda has shown the fluctuating trend from 71.39%, March 1991 to
75.75%, March 2009. The fluctuations have been due to change in policy reforms
which lead to less return in 1993, 1996 and 2001. Further, Bank of India indicates the
positive performance from 73.41%, March 1991 to 77.75% March 2009, this was
due to high deposits rate in the bank.
106
107
108
Further, Bank of Maharashtra has shown improving trend with this ratio from 34.4%,
March 1993 to 75.9%, March 2009, Central Bank of India has also shown the
improving trend from 57.37%, March 1995 to 80.13%, March 2009. UCO Bank and
United bank of India have indicated increased ratio from 70.17%, March 1992 to
78.26%, March 2009 and from -6.99%, March 1994 to 71.19%, March 2009
respectively. The improving trend is due capital inducement done by the government.
Further, the chart also shows that SBI and Vijaya Bank have also shown the positive
trend from
59. 34%, in March 1991 to 75.59%, March 2009 and from 62.91%,
109
Chart-4.4 shows the public sector banks profitability ratio PBDPTA/ Total Income.
Bank of Baroda has shown the improving trend from 13.18%, March 1991 to 25.30%,
March 2009. This is due to improvement in capital base. Bank of India has shown the
positive trend from 8.61%, March 1991 to 28.49%, March 2009. The hopeful trend is
due to capital inducement by government. Bank of Maharashtra has shown the
positive trend from -11.08%, March 1993 to 19.57%, March 2009. The negative
inclination is due to the high NPAs. Further, the Central Bank of India has shown
fluctuating trend from 5.37%, March 1995 to 13.19%, March 2009. This has been due
to capital inducement by government. Punjab & Sind Bank has shown the irregular
drift from 10.48%, March 1995 to 19.61%, March 2009. The fluctuation has been due
to shortage of funds. Punjab National Bank has shown the improving trend from
11.77%, March 1995 to 26.72%, March 2009. The improvement in this ratio is due to
the increase in provisions.UCO Bank and United Bank of India have shown the
negative trend in initial years. This was due to high NPAs and shortage of Capital.
Vijaya Bank and SBI have shown the variation in the trend due to market fluctuations.
Further, Chart-4.5 indicates the movements of private sector banks for PBT/Total
Income. Axis Bank reveals the fluctuating trend from 19.11%, March 1995 to
20.17%, March 2009. The reason is the rise in NPAs. Bank of Rajasthan has shown
the negative trend during the years 1998 and 1999. Dhanalakshmi Bank has shown
improving trend except for the year March 2005. The negative value was due to the
restructuring taking place in the organization. The HDFC Bank indicated improving
trend from 14.74%, March 1991 to 29.3%, March 2009. Further, ICICI Bank reveals
the trend from 6.79%, March 1995 to 12.8%, March 2009, which is due to increasing
loan credits. Jammu & Kashmir Bank Ltd. has shown the improving trend from
1.95%, March 1993 to 19.26%, March 2009 due to increase in deposits from the state.
Kotak Mahindra Bank Ltd. has shown fall in this ratio from 51.21%, March 1991 to
11.71%, March 2009 due to rise in the percentage of NPAs. South Indian Bank ltd.
has revealed improving trend from 7.36%, March 1995 to 15.62%, March 2009. Yes
Bank ltd. has improved from -11.52% from March 2005 to 18.8%, March 2009.
110
111
112
Chart-4.6 reveals the trend of public sector banks for PBT/Total Income. Bank of
Baroda has shown the fluctuations from 2.93%, March 1991 to 18.7%, March 2009.
The slowdown during the period of 1993-1994 affected the Bank of Baroda. Bank of
India ultimately shows the improvement from 0.95%, March 1991 to 21.47%, March
2009, the bank was disapprovingly affected during 1993 and 1994. Further, Bank of
Maharashtra has shown increase from - 43.55%, March 1993 to 10.66%, March 2009.
However, the bank has shown downfall during the year 1993-1996 due to shortage of
capital and overstaffing. Central Bank of India has shown improving trend from
-4.45%, March 1995 to 8.03%, March 2009. Even though, the fluctuations were due
to the rising NPAs. UCO bank and United Bank of India have shown improving trend
from -1.78%, March 1992 to 6.82%, March 2009 and -92.71%, March 1994 to 5.07%,
March 2009 respectively. The negative effects are due to NPAs and shortage of funds.
State Bank of India and Punjab National Bank have shown moderate fluctuations of
ratios.
Chart-4.7 shows the movements of private sector banks for PAT/Total Income. Axis
Bank reveals the fluctuating trend from the year 7.38%, March 1995 to 13.14%,
March 2009. The reason is the improvement in capital base. Bank of Rajasthan
indicates the positive trend from 3.69%, March 1993 to 7.78%, March 2009.
However, the bank has shown the negative trend during the year 1998 and 1999.
Dhanalakshmi Bank has shown development from 7.25%, March 1995 to 11.73%,
March 2009. The negative value was during the year 2005 due to the restructuring
taking place in the organization. The HDFC Bank has exposed improving trend from
11.32%, March 1991 to 29.3%, March 2009. Further, ICICI Bank reveals the trend
from 6.79%, March 1995 to 9.4%, March 2009, i.e. due to increasing advances.
Jammu & Kashmir Bank Ltd. has shown the positive drift from 1.95%, March 1993 to
12.49%, March 2009. This was due to increase in project finances from the state.
Kotak Mahindra Bank Ltd. has projected drop in this ratio from 46.23%, March 1991
to 7.59 %, March 2009. The decline is due to rise in the percentage of NPAs. South
Indian Bank ltd. has shown improving trend from 7.36%, March 1995 to 9.87%,
March 2009. Yes Bank Ltd. has shown drop from 18.91% from March 2005 to
12.26%, March 2009 due to global meltdown.
113
114
115
Chart-4.8 shows the trend of public sector banks for PAT/Total Income. Bank of
Baroda has shown the fluctuations from 2.95%, March 1991 to 12.46%, March 2009.
The slowdown during the period of 1993-1994 has affected the Bank of Baroda. Bank
of India gave positive indications as the trend moved from 0.95%, March 1991 to
15.5%, March 2009, however, the bank was negatively affected during 1993 and
1994. Further, Bank of Maharashtra has shown variation from -43.55%, March 1993
to 7.65%, March 2009, the bank has shown downfall during the year 1993-1996 due
to rise in NPAs. Central Bank of India has projected on improving trend from
4.45%, March 1995 to 4.96%, March 2009. The improvement in trend started due to
inducement in capital. UCO bank and United Bank of India have shown improving
trend from -1.78%, March 1992 to 5.96%, March 2009 and -92.71%, March 1994 to
3.8%, March 2009. These fluctuations were faced due to shortage of funds. State
Bank of India and Punjab National bank have shown moderate trend of ratios. Punjab
and Sind Bank has shown improving trend from 2.96%, March 1997 to 13.71%,
March 2009.
Further, Chart-4.9 shows the movements of private sector banks for PBDITA Net of
P&E /Total Income Net of P&E. Axis Bank reveals the positive trend from the year
66.03%, March 1995 to 73.08%, March 2009. Bank of Rajasthan indicates the drift
from 7.5%, March 1993 to 12.81%, March 2009. However, the bank has shown the
negative trend during the year 1999 due to shortage of capital. Dhanalakshmi Bank
has shown improving trend from 65.04%, March 1995 to 76.34%, March 2009. The
HDFC Bank has also indicated improving trend from 92.46%, March 1991 to
81.44%, March 2009. Further, ICICI Bank reveals increase from 57.24%, March
1995 to 72.9%, March 2009, i.e. due to increasing advances. Jammu & Kashmir
Bank Ltd. has shown the improving trend from 57.37%, March 1993 to 81.44 %,
March 2009 due to increase in project finances from the state. Kotak Mahindra Bank
Ltd. registered decline in ratio from 51.93%, March 1991 to 18.74%, March 2009. It
may be due to rise in the percentage of NPAs. South Indian Bank ltd. and Yes Bank
Ltd have shown improving trend from 69.54%, March 1995 to 80.15%, March 2009
and 15.69% from March 2005 to 80.94%, March 2009 respectively.
116
117
118
Chart-4.10 shows the trend of public sector banks for PBDITA Net of P&E / Total
Income Net of P&E. Bank of Baroda has projected an improving trend from 71.38%,
March 1991 to 75.75%, March 2009. Bank of India has shown a rise from 73.41%,
March 1991 to 77.75%, March 2009. The improving trend is due to inducement of
funds by government. Further, Bank of Maharashtra has revealed variation from
34.39%, March 1993 to 75.85%, March 2009. The overstaffing problems were
resolved by them which gave positive impact on this ratio. Central Bank of India and
UCO bank have shown improving trend from 57.36%, March 1995 to 80.13%, March
2009 and 70.17%, March 1992 to 78.08%, March 2009 respectively. However, United
Bank of India
has shown negative ratio during 1994. The negative effects were due
to shortage of funds. State Bank of India and Punjab National bank have shown
moderate trend of ratios. Punjab and Sind Bank has indicated optimistic trend from
63.62%, March 1995 to76.51%, March 2009.
Further, Chart-4.11 indicates the movements of private sector banks for PBDPTA Net
of P&E / Total Income Net of P&E. Axis Bank reveals the positive trend from the
year 30.81%, March 1995 to 28.21%, March 2009. Bank of Rajasthan indicates
increasing trend from 4.2%, March 1993 to 12.23%, March 2009. However, the bank
has shown the negative trend during the year 1998 and 1999 due to shortage of
capital. Dhanalakshmi Bank has shown a decline from 20.31%, March 1995 to
19.88%, March 2009. The HDFC Bank has shown an increase from16.45%, March
1991 to 29.8%, March 2009. Further, ICICI Bank reveals the improving trend from
16.09%, March 1995 to25.21%, March 2009. It may be due to increasing advances.
Jammu & Kashmir Bank Ltd. has projected the decreasing trend from 26.15%, March
1993 to 24.78%, March 2009. The decline is due to fluctuations in the funds. Kotak
Mahindra Bank Ltd. has also indicated decline in the ratio from 77.92 %, March 1991
to 13.05%, March 2009. This drop is due to rise in the percentage of NPAs. South
Indian Bank ltd. has shown an improving trend from 13.99%, March 1995 to 21.07%,
March 2009. Yes Bank ltd. has revealed a decline in trend from 36.72% from March
2005 to 24.06%, March 2009 due to global meltdown.
119
120
121
Chart-4.12 shows the trend of public sector banks for PBDPTA Net of P&E / Total
Income Net of P&E. Bank of Baroda has shown the positive trend from 13.16%,
March 1991 to 25.29%, March 2009. Bank of India indicated a rise from 8.61%,
March 1991 to 28.49%, March 2009. This uptrend is due to inducement of funds by
government. Further, Bank of Maharashtra has revealed upward variation from
-11.11%, March 1993 to 19.37%, March 2009. The funds inducement by government
gave positive impact on this ratio. Central Bank of India has an increase from 5.36%,
March 1995 to 13.19%, March 2009. UCO bank has indicated positive trend from
3.42%, March 1992 to 13.55%, March 2009. However, in case of United Bank of
India the ratio declined during 1994. The negative effects were due to shortage of
funds. State Bank of India and Punjab National bank have shown moderate trend of
the ratio. Punjab and Sind Bank has shown positive trend from 11.75%, March 1995
to 27.08%, March 2009.
Further, Chart-4.13 indicates the movements of private sector banks for PBT Net of
P&E / Total Income Net of P&E. Axis Bank reveals slight positive trend from the
year 19.11%, March 1995 to 19.43%, March 2009. Bank of Rajasthan indicates the
improvement from 3.69%, March 1993 to 11.44%, March 2009. However, bank has
shown the negative trend during the year 1998 and 1999 due to shortage of capital.
Dhanalakshmi Bank has projected an improvement from 7.22%, March 1995 to
16.23%, March 2009. However, in the year 2005 it showed negative value due to rise
in NPAs. The HDFC Bank has shown improving trend from14.74 %, March 1991 to
29.21%, March 2009. Further, ICICI Bank reveals the increasing drift from 16.09%,
March 1995 to 25.21%, March 2009. The trend indicates rise due to increasing
advances. Jammu & Kashmir Bank Ltd. has shown improvement from 1.95%, March
1993 to 18.91%, March 2009. This positive trend is due to increase in project finances
from the state. Kotak Mahindra Bank Ltd. has plunged in this ratio from 51.21%,
March 1991 to 11.3%, March 2009. The decline is due to rise in the percentage of
NPAs. South Indian Bank ltd. has improved from 7.34% in March 1995 to 16.6% in
March 2009. Yes Bank ltd. has shown diminishing trend from 28.87% from March
2005 to 18.74%, March 2009. The downtrend was due to global meltdown.
122
123
124
Chart-4.14 shows the trend of public sector banks for PBT Net of P&E / Total Income
Net of P&E. Bank of Baroda has shown the constructive trend from 2.93%, March
1991 to 18.69%, March 2009. Bank of India indicates improving development from
0.95%, March 1991 to 21.47%, March 2009, due to inducement of funds by
government. Further, Bank of Maharashtra has shown variation from -43.59%, March
1993 to 10.44%, March 2009. The funds inducement by government only gave
positive impact on this ratio. Central Bank of India and UCO Bank has shown
increase from -4.46%, March 1995 to 8.03%, March 2009 and 3.42%, March 1992 to
13.55%, March 2009 respectively. However, United Bank of India has revealed
negative ratio during 1994. The negative effects are due to shortage of funds and rise
in NPAs. State Bank of India and Punjab National Bank have shown moderate trend
of ratios. Punjab and Sind Bank has increased from 2.94%, March 1995 to 21.13 %,
March 2009.
Further, Chart-4.15 reveals the developments of private sector banks for PAT Net of
P&E / Total Income Net of P&E. Axis Bank reveals the positive trend from the year
7.38%, March 1995 to 12.34%, March 2009. Bank of Rajasthan also indicates the
positive trend from 3.69%, March 1993 to 7.79%, March 2009. However, the bank
has shown the negative trend during the years 1998 and 1999 due to shortage of
capital. Dhanalakshmi Bank has shown enhancement from 7.22%, March 1995 to
11.7%, March 2009. However, in March 2005 it showed negative value of -10.27%
due to rise in NPAs. The HDFC Bank has improved from 11.32%, March 1991 to
20.71%, March 2009. Further, ICICI Bank reveals the development from 6.79%,
March 1995 to 8.51%, March 2009, i.e. due to increase in advances. Jammu &
Kashmir Bank Ltd. has projected the improving trend from 1.95%, March 1993 to
12.09%, March 2009. The improvement is due to increase in project finances from the
state. Kotak Mahindra Bank Ltd. has shown decrease in this ratio from 46.23%,
March 1991 to 6.98%, March 2009, due to rise in the percentage of its NPAs. South
Indian Bank ltd. has registered an increase from 7.34%, March 1995 to 10.84%,
March2009. Yes Bank Ltd. has shown negative variation in trend from 18.92% from
March 2005 to 12.2%, March 2009. This variation has been due to global meltdown.
125
126
127
Chart-4.16 shows the trend of public sector banks for PAT Net of P&E / Total Income
Net of P&E. Bank of Baroda has registered an increase from 2.93%, March 1991 to
12.45%, March 2009. Bank of India indicates improving drift from 0.95%, March
1991 to 15.5%, March 2009. This is due to inducement of funds by government.
Further, Bank of Maharashtra has shown variation from -43.59%, March 1993 to
7.42%, March 2009. The funds inducement by government only in this also gave
positive impact on this ratio. Central Bank of India has shown an increase from
-4.46%, March 1995 to 4.96%, March 2009. UCO bank has shown improving trend
from -1.78%, March 1992 to 5.2%, March 2009. However, United Bank of India has
projected a negative ratio during 1994. The negative effects are due to shortage of
funds and rise in NPAs. State Bank of India and Punjab National bank have shown
moderate trend of ratios. Punjab and Sind Bank has shown an improvement from
2.94%, March 1995 to 14.07%, March 2009.
Thus the profitability analysis indicates that the profitability have increased
consistently of private sector banks than public sector banks in the period of 19912009. Public Sector banks have majorly been short of capital and victim of high
NPAs.
128
1.
2.
3.
PAT/Avg. Networth
4.
5.
6.
7.
8.
9.
10.
11.
12.
The independent samplet test analysis shown in Table- 4.2 indicates the mean,
standard deviation for the private sector and public sector banks. Further, the value of
t shows in case of PBPT Net of P&E/ average Networth (1.193), PBPT Net of P&E/
Average Capital employed (5.077), PBPT/ Average capital employed (1.115), PAT
net of P&E/ Average capital employed (1.966), PAT/ Average capital employed
(1.826) shows that the values are in 5% significant level. However, the variables like
PBPT net of P&E/ Average total assets(5.138), PAT net of P&E/ Average net worth
(3.097), PAT/ Average net worth (2.875), Cash profits/ Average net worth (3.391),
PBPT / Average total assets(5.052), PAT net of P&E/ average total assets(6.224),
PAT/ Average total Assets (6.033) does not show the 5% significance level.
129
Return Ratios
Banks
Mean
Private
150
32.6117
18.46369 -1.193
Public
169
35.6422
25.80523
Private
150
14.7139
16.15247
Public
169
2.5409
45.65907
Private
150
15.3948
16.06420
Public
169
4.0926
45.69890
Private
150
19.1697
17.78413
Public
169
5.6913
45.70537
Private
150
79.5922
Public
169 1.2218E2
83.21815
Private
150
19.1848
14.99119
Public
169
21.3034
18.49674
Private
150
7.5580
10.41461
Public
169
-2.7980
63.73902
Private
150
7.9107
10.43485
Public
169
-1.7228
63.84122
Private
149
8.9360
3.96168
Public
169
7.1667
1.95873
Private
149
8.9723
3.95353
Public
169
7.2312
1.97939
Private
149
1.4284
2.11913
Public
169
.2693
1.10014
Private
150
1.4552
2.11087
Public
169
.3343
1.10673
PAT/Avg Networth
Std. Deviation
Sig.
.170
3.097
.008
2.875
.007
3.391
.012
63.93211 -5.077
.995
-1.115
.886
1.966
.011
1.826
.011
5.138
.000
5.052
.000
6.224
.005
6.033
.006
130
The reason for the non significance level is due to banks like
Bank of India who have shown the unconstructive returns during the period of
1990,s. After the year 2000 the banks have been constantly showing improvement
but for the period of global meltdown which added to the fluctuations.
Further, Chart-4.17 shows the movements of private sector banks for PBPT Net of
P&E / Average Net worth. Axis Bank reveals the positive trend from the year
22.84%, March 1995 to 38.66%, March 2009. Bank of Rajasthan indicates the
fluctuating negative trend from 45.15%, March 1993 to 19.54 %, March 2009, due to
shortage of capital especially in 1998. Dhanalakshmi Bank has registered an
improvement from 36.63%, March 1995 to 30.09%, March 2009. The improvement is
due to increase in advances. The HDFC Bank has not shown an improving trend from
38.54%, March 1991 to 26.07%, March 2009, due to reduced returns of loans.
Further, ICICI Bank reveals the trend of stability from 17.82%, March 1995 to
17.73%, March 2009. Jammu & Kashmir Bank Ltd. has registered a decreasing trend
from 82.26%, March 1993 to 30.93%, March 2009. Kotak Mahindra Bank Ltd. has
also shown drop in this ratio from 93.69 %, March 1991 to 18.07%, March 2009. The
decline is due to rise in the percentage of NPAs. South Indian Bank ltd. has shown
stables trend from 32.28%, March 1995 to 30.56%, March 2009. Yes Bank ltd. has
revealed no significant variations.
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133
Chart-4.18 shows the trend of public sector banks for PBPT Net of P&E / Average
Net worth. Bank of Baroda has indicated decreasing trend from 104.82%, March 1991
to 35.93%, March 2009. The decline is due to overstaffing and lack of strategic
planning. Bank of India indicated decline from 55.28%, March 1991 to 45.31%,
March 2009. The drop is due to lack of capital. Further, Bank of Maharashtra has
shown negative variation from 52.78%, March 1993 to 36.48%, March 2009.The
decline is due to rise in NPAs. Central Bank of India has shown declining trend from
42.62 %, March 1995 to 23.26%, March 2009. The negative drift is due to lack of
capital. UCO bank has registered an increase from -64.49%, March 1992 to 30.55%,
March 2009. It was due to fresh capital inducement by government. State Bank of
India has also shown the decreasing trend 118.33%, March 1991 to 33.39%, March
2009. This variation has been due to transformation in the economic policies and
global meltdown. Punjab National bank and Punjab and Sind Bank have shown
moderate trend of ratios. United Bank of India has registered an improvement
-26.49%, March 1995 to 23.6%, March 2009. The improvement is due to capital
inducement by government. However, United Bank of India has indicated negative
ratio during 1995 and 1996. The downbeat effects were due to shortage of funds and
rise in NPAs. Vijaya Bank has shown moderate fluctuations from 34.62%, March
1995 to 32.05%, March 2009.
Further, Chart-4.19 shows the movements of private sector banks for PAT Net of
P&E / Average Networth. Axis Bank reveals the positive trend from 9.09%, March
1995 to 17.78%, March 2009. It may be due to improvement in the capital. Bank of
Rajasthan registered 28.84%, March 1993 as against 11.88%, March 2009. The bank
has shown the negative trend during the year 1998 and 1999, also due to shortage of
capital. Bharat Overseas Bank Ltd. projects the decreasing trend from 23.13%, March
1995 to 2.53%, March 2009 due to lack of proper operations. Dhanalakshmi Bank has
shown slight improvement from 14.02%, March 1995 to 19.19%, March 2009. The
improvement has been due to increase in advances. The HDFC Bank has projected a
fluctuating trend from 26.82%, March 1991 to 18.2%, March 2009. The reason for the
decrease is due to global meltdown in economy. Further, ICICI Bank reveals the
fluctuating negative trend from 12.52%, March 1995 to 6.92 %, March 2009. These
variations are due to lack of returns. Jammu & Kashmir Bank Ltd. has registered an
almost stable trend from 17.35%, March 1993 to 16.06 %, March 2009. The mild
134
135
136
fluctuation is due to change in reforms and policy. Kotak Mahindra Bank Ltd.
registered a plunge in this ratio from 79.87%, March 1991 to 6.73%, March 2009 due
to rise in the percentage of NPAs but South Indian Bank ltd. showed improvement in
trend from 6.41%, March 1995 to 16.3%, March 2009. Yes Bank ltd. has shown
variation in trend from 14.09% from March 2005 to 20.52%, March 2009.
Chart-4.20 shows the development of public sector banks for PAT Net of P&E /
Average Networth. Bank of Baroda has registered a decrease from 24.15%, March
1991 to 18.63%, March 2009. The decline is due to lack of usage of internet banking.
Bank of India indicates improvement from 9.46%, March 1991 to 24.9%, March
2009. However, Bank of India has shown the negative values in 1998 and 1999 due to
lack of capital and high NPAs. Further, Bank of Maharashtra showed variation from 80.37%, March 1995 to 16.88%, March 2009. The reason for the upbeat trend is rise
in profits, due to increase in advances. Central Bank of India projected an increase
from -14.95%, March 1995 to 9.25%, March 2009. The positive development is due
to inducement of capital. UCO bank has shown optimistic trend from -252.72%,
March 1992 to 14.02%, March 2009. The positive impact started due to capital
inducement by government. State Bank of India has also indicated the positive drift
from 9.23%, March 1991 to 16.95%, March 2009. It is due to increase in operations.
Punjab National Bank and Punjab and Sind Bank have revealed moderate trend of
ratios. United Bank of India has shown fluctuating trend from 5.43%, March 1995 to
4.4%, March 2009. It is due to fluctuations in capital. Vijaya Bank has made known
moderate fluctuations from 3.52%, March 1995 to 7.4%, in March 2009.
Further, Chart-4.21 shows the developments of private sector banks for PAT /
Average Networth. Axis Bank reveals the positive development from 9.12%, March
1995 to 19.12%, March 2009. The positive trend is due to improvement in the capital.
Bank of Rajasthan indicates unenthusiastic trend from 28.44%, March 1993 to
11.86%, March 2009. Moreover, the bank has shown the negative trend during the
years 1998 and 1999 also, due to shortage of capital. Bharat Overseas Bank Ltd.
reveals the decrease from 23.13%, March 1995 to 2.76%, March 2009. The decline is
due to lack of proper operations. Dhanalakshmi Bank has shown modest improvement
from 14.26%, March 1995 to 19.25%, March 2009. The positive feature
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138
139
is attributed to increase in advances. The HDFC Bank indicates decline from 26.82%,
March 1991 to 18.31%, March 2009. The reason for decrease is due to global
meltdown in economy. Further, ICICI Bank reveals the trend of fluctuation from
12.52%, March 1995 to 7.77%, March 2009. It is due to lack of returns. Jammu &
Kashmir Bank Ltd. indicates stability with 17.31%, March 1993 from 16.72, March
2009. The mild fluctuations are due to reforms and policy change. Kotak Mahindra
Bank Ltd. has shown plunge in this ratio from 79.87 %, March 1991 to 7.36%, March
2009. It is due to rise in the percentage of NPAs. It can be seen from the chart South
Indian Bank ltd. indicated increase from 6.43%, March 1995 to 14.85%, March 2009.
The improvement is the result of increase in advances. Yes Bank ltd. has shown
positive variation in trend from 14.09% from March 2005 to 20.65% in March 2009.
Chart-4.22 shows the trend of public sector banks for PAT / Average Networth. Bank
of Baroda has shown the fluctuating trend from 24.21%, March 1991 to 18.65%,
March 2009. The decrease is due to lack of returns. Bank of India indicated the
positive trend from 9.46 %, March 1991 to 24.97%, March 2009. However, the bank
has revealed the negative values in 1993 and 1994 due to lack of capital and high
NPAs. Further, Bank of Maharashtra has shown positive variation from -80.15%,
March 1995 to 17.46%, March 2009 and the improvement is due to increase in
advances. Central Bank of India indicated positive trend from -14.88%, March 1996
to 9.25%, March 2009. UCO bank has shown fluctuating trend from -252.72%, March
1992 to 16.02%, March 2009. The positive impact is due to inducement of fresh
capital. United Bank of India has shown optimistic trend from -153.5%, March 1995
to 6.44%, March 2009. It is due to adoption of the methods of handling NPAs.
However, the negative ratio during the year 1996 and 1997 was due to shortage of
funds. State Bank of India has also projected the positive trend 9.22%, March 1991 to
17.05%, March 2009. It is due to change in the economic policy and global meltdown.
Punjab National bank and Punjab and Sind Bank have shown moderate trend of ratios.
Vijaya Bank felt the effect of global meltdown with fluctuations from 14.17%, March
1995 to 9.36%, March 2009.
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141
142
Further, Chart-4.23 shows the movements of private sector banks for Cash Profit/
Average Networth. Axis Bank reveals the positive trend from the year12.28%, March
1995 to 18.9%, March 2009 due to improvement in the capital. Bank of Rajasthan
indicated negative trend from 30.83%, March 1993 to 10.83%, March 2009. It is due
to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the
decreasing trend from 27.18%
drift is due to lack of proper operations. Dhanalakshmi Bank has shown improvement
in trend from 16.53%, March 1995 to 21.65%, March 2009. The positive impact is
due to increase in advances. The HDFC Bank has shown a decrease from 30.63%,
March 1991 to 18.27%, March 2009. The decline is due to global meltdown in
economy. Further, ICICI Bank reveals the trend of negative fluctuation from 16.4%,
March 1995 to 9.62%, March 2009. The fluctuation is due to lack of returns. Jammu
& Kashmir Bank Ltd. has revealed a stable trend from 18.78%, March 1993 to
18.06%, March 2009. It is due to reforms and policy change. Kotak Mahindra Bank
Ltd. has shown considerable drop in this ratio from 113.35%, March 1991 to 7.36 %,
March 2009. The decline is due to rise in the percentage of NPAs. South Indian Bank
ltd. has projected its rise from 8.28%, March 1995 to 17.49%, March 2009. Yes Bank
ltd. has shown positive variation in trend from 16.2% from March 2005 to 22.23% in
March 2009.
Chart-4.24 shows the trend of public sector banks for Cash Profit / Average
Networth. Bank of Baroda has projected the decreasing trend from 28.52%, March
1991 to 20.56%, March 2009. The decline is due lack of capital. Bank of India
registered an improvement from 11.2%, March 1991 to 25.55%, March 2009.
However, Bank of India has shown the negative values in 1993 and 1994 due to lack
of capital and high NPAs. Further, Bank of Maharashtra projected a positive
variation from -70.46 %, March 1995 to 24.5%, March 2009. It is due to
improvement in advances. Central Bank of India has shown improvement from
-12.54%, March 1996 to 10.6%, March 2009. It is due to inducement of capital by
government. UCO bank and United Bank of India have also shown optimistic trend
from
-249.91%, March 1992 to 19.82%, March 2009 and -153.5%, March 1995 to
143
March 1991 to 16.4%, March 2009 due to change in the economic policy and global
meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate
trend of ratios. Vijaya Bank has shown reasonable negative fluctuations from
16.48%, March 1995 to 8.73%, March 2009.
Chart-4.25 shows the movements of private sector banks for PBPT Net of P&E/
Average Capital Employed. Axis Bank reveals a decline from the year 72.9%, March
1995 to 50.02%, March 2009, due to improvement in NPAs. Bank of Rajasthan
registered a decrease in ratio from 187.67 %, March 1993 to 135.43%, March 2009.
It is due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. also
reveals the decreasing trend from 147.73%, March 1995 to 57.72%, March 2009. It
may be due to lack of proper operations. Dhanalakshmi Bank has decreased
fluctuations from 138.2%, March 1995 to 104.37%, March 2009. The reason is due
to increase in advances. The HDFC Bank has shown moderate trend from 14.87%,
March 1991 to 12.49%, March 2009. It is due to decrease is due to global meltdown.
Further, ICICI Bank reveals the negative fluctuation from 57.78%, March 1995 to
23.15%, March 2009. The drift is due to lack of returns. Jammu & Kashmir Bank
Ltd. indicates decrease from 213.01%, March 1993 to 82.67%, March 2009. It is due
to reforms and policy change. Kotak Mahindra Bank Ltd. has shown drop in ratio
from 30.86%, March 1991 to 24.71%, March 2009 due to rise in the percentage of
NPAs. South Indian Bank ltd. has remained stable from 110.28%, March 1995 to
110.56%, March 2009. Yes Bank ltd. has shown positive variation in trend from
34.23% from March 2005 to 55.76%, March 2009.
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146
Chart-4.26 shows the trend of public sector banks for PBPT Net of P&E / Average
Capital Employed. Bank of Baroda has revealed a negative trend from 191.19%,
March 1991 to 62.05%, March 2009. The inclination is due lack of capital. Bank of
India decreased from 129.04%, March 1991 to 67.66%, March 2009. It has shown the
diminishing trend, due to lack of capital and high NPAs. Further, Bank of
Maharashtra has shown a plunge from 843.7%, March 1995 to 90.34%, March 2009.
The decline is due to rise in NPAs. Central Bank of India has shown a decline from
167.78%, March 1996 to 122.86%, March 2009. It may be due to lack of capital.
UCO bank has registered positive trend from 82.89%, March 1992 to 96.64%, March
2009. The reason for upbeat trend is inducement of capital. United Bank of India has
shown a prominent declining trend from 409.16% in March 1995 to 83.25% in March
2009. The negative effects are due to shortage of funds and rise in NPAs. State Bank
of India has also revealed unenthusiastic trend 52.61%, March 1991 to 47.61%,
March 2009. The decline is due to change in the economic policy and global
meltdown. Punjab National bank and Punjab and Sind Bank have shown moderate
trend of ratios. Vijaya Bank has shown reasonable fluctuations from 152.34%, March
1995 to 93.15%, March 2009 due to the effects of global meltdown and increase in
NPAs.
Further, Chart-4.27 shows the movements of private sector banks for PBPT / Average
Capital Employed. Axis Bank reveals the positive trend from the year 15.85%, March
1995 to 17.56 %, March 2009. It is due to improvement in the capital. Bank of
Rajasthan indicates declining trend from 34.03 %, March 1993 to 22.01%, March
2009. The decrease is due to shortage of capital and rise in NPAs. Bharat Overseas
Bank Ltd. also reveals the decreasing trend from 43.21%, March 1995 to 11.67%,
March 2009. It is due to lack of proper operations. Dhanalakshmi Bank has projected
an
improvement from 23.88%, March 1995 to 24.94%, March 2009. The positive
impact is due to increase in advances. The HDFC Bank has shown moderate trend
from 3.85%, March 1991 to 2.94%, March 2009. However, the decrease is due to
global meltdown. Further, ICICI Bank also reveals the negative fluctuating trend from
12.52%, March 1995 to 6.63%, March 2009 due to lack of returns. Jammu & Kashmir
Bank Ltd. has shown a decline from 67.56%, March 1993 to 23.31% March 2009.
The fluctuation is due to reforms and policy change. Kotak Mahindra Bank Ltd. has
147
148
149
shown decrease in this ratio from 25.36%, March 1991 to 7.79%, March 2009. The
decline due to rise in the percentage of NPAs. South Indian Bank ltd. has shown
positive trend from 21%, March 1995 to 25.75%, March 2009. Yes Bank ltd. has
revealed moderate variation in trend from 16.65% from March 2005 to 15.02%,
March 2009 returns.
Chart-4.28 shows the trend of public sector banks for PBPT / Average Capital
Employed. Bank of Baroda has shown the improving trend from 40.55%, March 1991
to 18.68 %, March 2009. The decline is due lack of capital. Bank of India indicated
optimistic rise from 19.47%, March 1991 to 22.65%, March 2009. It is due to capital
inducement. Further, Bank of Maharashtra has shown positive variation from
-87.26%, March 1995 to 18.84%, March 2009. The fluctuations have been due to rise
in NPAs. Central Bank of India has shown declining variations from 21.66%, March
1996 to 18.27%, March 2009. It is due to lack of capital. UCO bank has shown
positive drift from -11.79%, March 1992 to 14.47%, March 2009 as fresh capital was
induced by government. United Bank of India has shown a decline from 33.1%,
March 1995 to 16%, March 2009. The declining effects are due to shortage of funds
and rise in NPAs. State Bank of India has also revealed the positive trend with
12.03%, March 1991 to 14.04%, March 2009. It is due to change in the economic
policy and global meltdown. Punjab National bank and Punjab and Sind Bank have
shown moderate trend of ratios. Vijaya Bank has registered a decline from 27.55%,
March 1995 to 17.72%, March 2009 due to the effects of global meltdown and
increase in NPAs.
Further, Chart-4.29 shows the movements of private sector banks for PAT Net of
P&E / Average Capital Employed. Axis Bank reveals a stable positive trend from the
year 6.3%, March 1995 to 7.8 %, March 2009. It is due to the improvement in the
capital. Bank of Rajasthan indicates decline in values from 21.41%, March 1993 to
13.38%, March 2009. This is due to shortage of capital and rise in NPAs. Bharat
Overseas Bank Ltd. reveals the negative trend from 15.79%, March 1995 to 1.6%,
March 2009. Dhanalakshmi Bank has shown improvement from 9.08%, March 1995
to 15.87%, March 2009. The positive impact is due to increase in advances. The
HDFC Bank has shown moderate stable trend from 1.98%, March 1991 to 2.74%,
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151
152
March 2009. However, the fluctuations are due to global meltdown. Further, ICICI
Bank reveals the fluctuating negative trend from 8.8%, March 1995 to 2.49%, March
2009 due to lack of returns. Jammu & Kashmir Bank Ltd. has shown the moderate
decreasing trend from 14.25%, March 1993 to 11.86%, March 2009 due to reforms
and policy change. Kotak Mahindra Bank Ltd. has shown decline in this ratio from
21.62%, March 1991 to 2.8%, March 2009 due to rise in the percentage of NPAs.
South Indian Bank ltd. has indicated improving trend from 2.58%, March 1995 to
14.42%, March 2009. Yes Bank ltd. has shown almost stable trend from 9.3% from
March 2005 to 8.26% in March 2009 returns.
Chart-4.30 indicates the trend of public sector banks for PAT Net of P&E / Average
Capital Employed. Bank of Baroda has shown the moderate trend from 9.34%, March
1991 to 9.68%, March 2009. Bank of India indicates improving trend 3.32%, March
1991 to 12.48%, March 2009. Further, Bank of Maharashtra has shown a positive
variation from -765.31%, March 1995 to 8.58%, March 2009. The decline initially
was due to rise in NPAs. Central Bank of India has projected positive trend from 7.59%, March 1996 to 7.27%, March 2009 which has been due to lack of capital.
UCO Bank has revealed positive trend from -46.19%, March 1992 to 6.19%, March
2009. This is due to capital inducement by government. United Bank of India have
shown declining ratio. The negative effects are due to shortage of funds and rise in
NPAs. State Bank of India has also shown the positive drift from 0.94% in March
1991 to 7.1%, March 2009. It is due to change in the economic policy and global
meltdown. Punjab National bank and Punjab and Sind Bank have shown negative
trend of ratios. Vijaya Bank has shown moderate fluctuations from 11.22%, March
1995 to 3.86%, March 2009.
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154
155
Further, Chart-4.31 shows the movements of private sector banks for PAT / Average
Capital Employed. Axis Bank reveals the positive trend from 6.32%, March 1995 to
83.9%, March 2009. It is due to improvement in the capital. Bank of Rajasthan
indicates declining trend from 21.41%, March 1993 to 13.37%, March 2009.This is
due to shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd. reveals the
decreasing trend from 15.79%, March 1995 to 1.75%, March 2009. Dhanalakshmi
Bank has registered development from 9.24%, March 1995 to 15.92%, March 2009. It
is due to increase in advances. The HDFC Bank has shown moderate trend from
1.98%, March 1991 to 2.76%, March 2009. Further, ICICI Bank reveals the trend of
negative fluctuation from 8.8%, March 1995 to 2.78%, March 2009; due to lack of
returns. Jammu & Kashmir Bank Ltd. has shown the moderate trend from 14.25%,
March 1993 to 12.34%, March 2009. The fluctuating trends are due to reforms and
policy change. Kotak Mahindra Bank Ltd. has shown plunge in this ratio from
21.62%, March 1991 to 3.07%, March 2009. The decline is due to rise in the
percentage of NPAs. South Indian Bank ltd. revealed optimistic trend from 2.58%
March 1995 to 13.14%, March 2009. Yes Bank ltd. has shown minor variations in
returns from 9.3% from March 2005 to 8.31%, March 2009.
Chart-4.32 indicates the trend of public sector banks for PAT / Average Capital
Employed. Bank of Baroda has shown the moderate stable trend from 9.36%, March
1991 to 9.68%, March 2009. Bank of India registered rise from 3.37%, March 1991
to 12.48%, March 2009. Further, Bank of Maharashtra has shown increase from
-765.31%, March 1995 to 8.87%, March 2009. The variations are due to rise in NPAs.
Central Bank of India has indicated increase from -7.55%, March 1996 to 7.27%,
March 2009, which was initially low due to lack of capital. UCO bank has shown
improvement from -46.19%, March 1992 to 7.16%, March 2009. It is due to capital
inducement by government. United Bank of India projected a declining ratio. The
negative effects are due to shortage of funds and rise in NPAs. State Bank of India
projected a rise from 0.94%, March 1991 to 7.15%, March 2009. This was due to
change in the economic policy and global meltdown. Punjab National bank and
Punjab and Sind Bank have shown moderate trend of ratios. Vijaya Bank registered
decrease from 11.26%, March 1995 to 4.88%, March 2009 due to the effects of global
meltdown and increase in NPAs.
156
157
158
Further, Chart-4.33 shows the movements of private sector banks for PBPT Net of
P&E / Average Capital Employed. Axis Bank reveals the negative trend from the year
14.51%, March 1995 to 8.41%, March 2009. However, the decline is due to economic
fluctuations. Bank of Rajasthan also indicates declining trend from 8.21%, March
1993 to 7.22%, March 2009. It is due to shortage of capital and rise in NPAs. Bharat
Overseas Bank Ltd. reveals the decreasing trend from 8.08%, March 1995 to 5.24%,
March 2009. The downfall is due to lack of proper operations. Dhanalakshmi Bank
has shown a decline from 10.38%, March 1995 to 7.78%, March 2009 due to rise in
NPAs. The HDFC Bank has shown moderate decrease from 14.16%, March 1991 to
11.18%, March 2009. Further, ICICI Bank reveals a negative trend from 13.44%,
March 1995 to 8.02%, March 2009. It may be due to lack of returns. Jammu &
Kashmir Bank Ltd. has projected the moderate negative trend from 8.36%, March
1993 to 7.8%, March 2009.Kotak Mahindra Bank Ltd. has registered a drop in this
ratio from 28.59%, March 1991 to 7.8%, March 2009 due to rise in the percentage of
NPAs. South Indian Bank ltd. has shown diminishing trend from 10.32%, March 1995
to 8.22%, March 2009. Yes Bank ltd. only has shown optimistic trend from 7.49%
from March 2005 to 10.23%, in March 2009 returns.
Chart-4.34 shows the trend of public sector banks for PBPT Net of P&E / Average
Total Assets. Bank of Baroda has shown the moderate decreasing trend from 10.26%,
March 1991 to 7.01%, March 2009. Bank of India also indicated mild fluctuation
from 10.09%, March 1991 to 8.06%, March 2009. The decline is due to shortage of
capital. Further, Bank of Maharashtra has shown positive variation from 6.85%,
March 1995 to 7.13%, March 2009. These fluctuations are due to provisions. Central
Bank of India has shown approximately stable trend from 7.88%, March 1996 to
7.09%, March 2009. UCO bank has projected increase from 6.74%, March 1992 to
7.46%, March 2009 as fresh capital was induced by government. United Bank of
India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank
have also shown moderate trend of this ratio. Vijaya Bank has shown modest positive
fluctuations from 7.59%, March 1995 to 8.45%, March 2009. The drift is due to
increase in advances.
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160
161
Further, Chart-4.35 shows the developments of private sector banks for PBPT /
Average Total Assets. Axis Bank reveals the declining trend from the year 14.51%,
March 1995 to 8.51%, March 2009. The decrease is due to lack of sufficient capital.
Bank of Rajasthan indicates reasonable negative trend from 8.21%, March 1993 to
7.21%, March 2009. It is due rise in NPAs. Bharat Overseas Bank Ltd. also reveals
the decreasing trend from 8.08%, March 1995 to 5.24%, March 2009. Dhanalakshmi
Bank has shown decline from 10.38%, March 1995 to 7.78%, March 2009. It may be
due to decrease in advances. The HDFC Bank has projected a moderate decrease from
14.16%, March 1991 to 11.18%, March 2009. However, the variation is due to global
meltdown. Further, ICICI Bank reveals the trend of negative fluctuation from 13.44%,
March 1995 to 8.12%, March 2009. It may be due to lack of returns. Jammu &
Kashmir Bank Ltd. has registered approximately stable trend from 8.36%, March
1993 to 7.84%, March 2009. The inclination may be due to reforms and policy
change. Kotak Mahindra Bank Ltd. has made known plunge in this ratio from
28.59%, March 1991 to 7.8%, March 2009. The decline is due to rise in the
percentage of NPAs. South Indian Bank ltd. has indicated minor fluctuating trend
from 10.32%, March 1995 to 8.31%, March 2009. Yes Bank ltd. has shown slight rise
in trend from 7.49% from March 2005 to 10.24%, March 2009 returns.
Chart-4.36 indicates the trend of public sector banks for PBPT / Average Total
Assets. Bank of Baroda has shown the moderate decrease from 10.26%, March 1991
to 7.01%, March 2009.The variations is due to high percentage of NPAs. Bank of
India indicated drop from 10.01%, March 1991 to 8.06%, March 2009. It may be due
to increase in NPAs. Further, Bank of Maharashtra has shown a approximate increase
from 6.85%, March 1995 to 7.15%, March 2009. The fluctuations are due to the
provisions. Central Bank of India has revealed stable trend from 7.88% March 1996
to 7.09% March 2009. It may be due to minor fluctuations capital. UCO bank has
revealed an improvement from 6.74 %, March 1992 to 7.54%, March 2009. The
positive impact was due to as capital inducement by government. United Bank of
India has shown moderate ratio. Punjab National bank and Punjab and Sind Bank
have also shown moderate ratio. Vijaya Bank has shown reasonable positive
fluctuations from 7.59%, March 1995 to 8.55%, March 2009. It may be due to
increase in advances.
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164
Further, Chart-4.37 reveals the development of private sector banks for PAT Net of
P&E /Average Total Assets. Axis Bank indicates the positive trend from the year
1.25%, March 1995 to 1.31%, March 2009. It may be due to improvement in the
advances. Bank of Rajasthan trend indicates drop from 0.94 %, March 1993 to
0.71%, March 2009. This decline is due to shortage of capital and rise in NPAs.
Bharat Overseas Bank Ltd. reveals the decreasing trend from 0.86%, March 1995 to
0.15%, March 2009. Dhanalakshmi Bank has shown improvement from 0.68%,
March 1995 to 1.18%, March 2009. This is due to increase in advances. The HDFC
Bank has shown moderate increase from 1.89%, March 1991 to 2.45%, March 2009.
The variation is due to conservative approach of bank for its conduct in business.
Further, ICICI Bank reveals the fluctuating negative trend from 2.05%, March 1995
to
0.86 %, March 2009. This may be due to lack of adequate returns. Jammu &
Kashmir Bank Ltd. indicated moderate increase from 0.59%, March 1993 to 1.12%,
March 2009. This is due to reforms and policy change. Kotak Mahindra Bank Ltd.
has shown plunge in this ratio from 20.02%, March 1991 to 0.88%, March 2009. It is
due to rise in the percentage of NPAs. South Indian Bank ltd. has projected some
improvement from 0.24%, March 1995 to 1.07%, March 2009. Yes Bank ltd. has
shown negative variations in returns from 2.04% from March 2005 to 1.51%, March
2009.
Chart-4.38 shows the trend of public sector banks for PAT Net of P&E / Average
Total Assets. Bank of Baroda has shown the approximate increase from 0.05%,
March 1991 to 1.09%, March 2009. Bank of India indicated improving trend 0.26%,
March 1991 to 1.49%, March 2009. Further, Bank of Maharashtra has shown
positive variation from -6.22%, March 1995 to 0.68%, March 2009. However, the
initial low value was due to rise in NPAs. Central Bank of India has registered
improvement from -0.36%, March 1996 to 0.42%, March 2009. The fluctuations are
due to lack of capital. UCO bank has shown improving trend from -3.75%, March
1992 to 0.48%, March 2009. It may be due to inducement of fresh capital. United
Bank of India has shown moderate ratio. Punjab National bank and Punjab and Sind
Bank have also shown moderate trend of this ratio. Vijaya Bank has shown mild
fluctuations from 0.56% in March 1995 to 0.35% in March 2009. The variations are
due to rise in NPAs.
165
166
167
Further, Chart-4.39 shows the drift of private sector banks for PAT / Average Total
Assets. Axis Bank reveals the positive trend from the year 1.26%, March 1995 to
1.41%, March 2009. It is due to improvement in the returns. Bank of Rajasthan
indicated moderate trend from 0.94%, March 1993 to 0.71%, March 2009. The
variation is due to rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing
trend from 0.86%, March 1995 to 0.15%, March 2009. It may be due to lack of
proper operations. Dhanalakshmi Bank has shown improvement from 0.68%, March
1995 to 1.19%, March 2009. The increase is due to increase in advances. The chart
also shows HDFC Banks moderate trend from 1.89%, March 1991 to 2.47%, March
2009. It is due to conservative approach. Further, ICICI Bank reveals the fluctuating
trend from 2.05%, March 1995 to 0.96%, March 2009. It is due to lack of returns.
Jammu & Kashmir Bank Ltd. has projected a moderate trend from 0.63%, March
1993 to 1.16%, March 2009. It is due to reforms and policy change. Kotak Mahindra
Bank Ltd. has shown drop in this ratio from 20.02%, March 1991 to 0.97%, March
2009. The plunge is due to rise in the percentage of NPAs. South Indian Bank ltd.
has revealed mild improving trend from 0.24%, March 1995 to 0.98%, March 2009.
Yes Bank Ltd. has shown variation in trend from 2.04% from March 2005 to 1.52%,
March 2009 returns which is due to economic slowdown.
Chart-4.40 shows the trend of public sector banks for PAT / Average Total Assets.
Bank of Baroda has shown the moderate trend from 0.06%, March 1991 to 1.09%,
March 2009. Bank of India indicated improvement from 0.26%, March 1991 to
1.49%, March 2009. Further, Bank of Maharashtra has also shown improvement
from -6.22%, March 1995 to 0.7%, March 2009. The fluctuation is due to rise of
NPAs. Central Bank of India has shown reasonable trend from -0.36%, March 1996
to 0.42%, March 2009. The variations are due to lack of capital. UCO bank has
revealed improving trend from -3.75%, March 1992 to 0.55%, March 2009. United
Bank of India has shown moderate ratio. Punjab National Bank and Punjab and Sind
Bank have also shown moderate ratio. Vijaya Bank has shown reasonable
fluctuations from 0.56%, March 1995 to 0.44%, March 2009. This is due to
fluctuations in the market.
Thus, the return ratios indicate the variation in private sector and public sector banks
due to lack of capital, rise in NPAs, high advances and economic slowdown.
168
1.Quick ratio
2. Current ratio
3. Debt to equity ratio
Std.
Liquidity Ratios
Banks
Mean
Deviation
Quick ratio
Private
150
3.7281
3.12269
Public
169
3.2210
1.72834
Private
150
3.9595
3.13686
Sig.
1.821
Current ratio
1.991
Public
169
3.3946
1.82895
Private
150
1.9626
2.57943
Debt to equity
ratio
Public
169
1.5589
.913
.000
.000
.179
2.34651
The independent samplet test analysis shown in Table 4.3 indicates the mean,
standard deviation for private sector and public sector banks. Further, Quick Ratio
(1.821) and current ratio (1.991) shows that the values are at less than 5% level of
Significance. However Debt to equity ratio (.913) shows that the values are in 5%
significance level. The reason for non significance level is due to effect on the
liquidity because of the global meltdown in the economy during 2008. The reasons for
tight liquidity conditions in the Indian market in recent times includes large selling by
Foreign Institutional Investors (FIIs) and subsequent Reserve Bank of India (RBI)
interventions in the foreign currency market, continuing growth in advances, and
169
earlier increases in cash reserve ratio (CRR) to contain inflation. Moreover the public
sector banks like UCO bank, central Bank of India; Bank of India has suffered the
shortage of capital in past trend.
170
171
172
Further, Chart-4.41 shows the movements of private sector banks for Quick Ratio.
Axis Bank reveals the positive increasing trend from the year 1.05%, March 1995 to
4.41%, March 2009. It may be due to improvement in the capital. Bank of Rajasthan
indicates the variations from 3.47% in March 1993 to 3.1%, March 2009. Bharat
Overseas Bank Ltd. reveals the modest trend from 3.78%, March 1995 to 4.1%,
March 2009. Dhanalakshmi Bank has shown improvement from 2.64%, March 1995
to 4.8%, March 2009. It is due to increase in current assets. The HDFC Bank has
shown decline from 16.9%, March 1991 to 0.33%, March 2009. Further, ICICI Bank
reveals the fluctuating trend from 15.29%, March 1995 to 2.54%, March 2009. It is
due to variations in returns. Jammu & Kashmir Bank Ltd. has revealed the moderate
rise from 3.4%, March 1993 to 7.1%, March 2009. The reason is due to low NPAs
which helped to maintain liquidity. Kotak Mahindra Bank Ltd. has revealed drop in
this ratio from 1.35%, March 1991 to 0.84%, March 2009. This is due to rise in the
percentage of NPAs. South Indian Bank ltd. has shown diminishing trend from
7.23%, March 1995 to 2.85%, March 2009. Yes Bank Ltd. has shown some increase
from 0.53% from March 2005 to 1.25%, March 2009.
Chart-4.42 reveals the trend of public sector banks for Quick Ratio. Bank of Baroda
has shown the moderate rising trend from 2.94%, March 1991 to 3.86%, March 2009.
Bank of India indicated a minor rise from 3.14%, March 1991 to 4%, March 2009. It
may be due to improvement in current assets. Further, Bank of Maharashtra has
shown increase from 1.98%, March 1993 to 2.81%, March 2009. The increase is due
to the inducement of capital by government. Central Bank of India has shown some
decrease from 3.61% in March 1995 to 2.8% in March 2009. It is due to market
fluctuations. UCO Bank has shown improvement from 3.22%, March 1992 to 6.09%,
March 2009. It is due to capital inducement by government. United Bank of India has
shown moderate ratio. Punjab National Bank and Punjab and Sind Bank have also
shown moderate ratio. Vijaya Bank has registered increase from 5.94% in March
1994 to -7.78%, March 2009. It is due to effect of global slowdown in market.
173
174
175
Further, Chart-4.43 shows the movements of private sector banks for Current Ratio.
Axis Bank reveals the positive trend from the year 1.15%, March 1995 to 4.11%,
March 2009. The positive impact is due to improvement in the capital. Bank of
Rajasthan indicates moderate fluctuations from 3.54%, March 1993 to 3.14%, March
2009. The variations are due rise in NPAs. Bharat Overseas Bank Ltd. reveals the
increasing trend from 3.96%, March 1995 to 4.32%, March 2009. It may be due to
change in reforms and policy. Dhanalakshmi Bank has shown improvement from
2.89%, March 1995 to 4.95%, March 2009. It is due to increase in current assets. The
HDFC Bank has shown decrease from 16.9%, March 1991 to 0.36%, March 2009. It
is due to global meltdown. Further, ICICI Bank reveals the trend of decline from
15.29% in March 1995 to 2.89% in March 2009. It is due to lack of returns. Jammu &
Kashmir Bank Ltd. has registered a moderate trend from 3.45%, March 1993 to
7.18%, March 2009. The low NPAs in bank helped to maintain liquidity. Kotak
Mahindra Bank Ltd. has shown decrease in this ratio from 3.35%, March 1991 to
0.84%, March 2009. It is due to rise in the percentage of NPAs. South Indian Bank
ltd. has shown declining trend from 7.23% March 1995 to 2.85%, March 2009. Yes
Bank Ltd. has shown variation in trend from 0.53% from March 2005 to 1.42%,
March 2009. The positive impact is due to improvement in current assets.
Chart-4.44 indicates the trend of public sector banks for Current Ratio. Bank of
Baroda has shown the moderate trend from 3.06%, March 1991 to 4%, March 2009.
Bank of India indicated improving current ratio from 3.31%, March 1991 to 4.35%,
March 2009. Further, Bank of Maharashtra has shown variation from 2.17%, March
1993 to 2.93%, March 2009. The disparity is due to the inducement of capital by
government. Central Bank of India has shown minor decrease from 4.12%, March
1995 to 3.15%, March 2009. UCO bank has registered improving trend from 3.29%,
March 1992 to 6.29%, March 2009. It is due to inducement of fresh capital by
government. United Bank of India has revealed moderate ratio. Punjab National bank
and Punjab and Sind Bank have also shown moderate ratio. Vijaya Bank has indicated
decline from 5.99% in March 1994 to -8.26%, March 2009. It is due to effects of
global slowdown in market.
176
177
178
Further, Chart-4.45 shows the developments of private sector banks for Debt to
Equity Ratio. Axis Bank reveals the positive trend from the year 0.75%, March 1995
to 1.52%, March 2009. It may be due to improvement in the capital. Bank of
Rajasthan indicates stable ratio from 0.47%, March 1993 to 0.46%, March 2009. It is
due to rise in NPAs. Bharat Overseas Bank Ltd. reveals the decreasing trend from
0.78%, March 1995 to 0.63%, March 2009. The effects are due to change in reforms
and policy. Dhanalakshmi Bank has shown variations from 0.62%, March 1995 to
0.2%, March 2009. It is due to fluctuations in current assets. The HDFC Bank showed
decrease from 12.1%, March 1991 to 6.38%, March 2009. However, the decrease is
due to global meltdown. Further, ICICI Bank reveals the fluctuation trend from
1.35%, March 1995 to 1.86 %, March 2009. Jammu & Kashmir Bank Ltd. has shown
the moderate trend from 0.26%, March 1993 to 0.38%, March 2009. It is due to low
NPAs which helped to maintain liquidity. Kotak Mahindra Bank Ltd. has exposed
drop in this ratio from 3.09%, March 1991 to 1.72%, March 2009. It is due to rise in
the percentage of NPAs and shortage of liquidity. South Indian Bank ltd. has shown
declining trend from 1.16%, March 1995 to 0.32%, March 2009. It is due to lack of
capital. Yes Bank Ltd. has shown positive trend from 1.73% from March 2005 to
2.17% in March 2009.
Chart-4.46 shows the trend of public sector banks for Debt to Equity Ratio. Bank of
Baroda has shown the moderate decreasing trend from 3.51 % in March 1991 to 0.99
% in March 2009. It is due to increase in NPA, the liquidity was affected. Bank of
India indicated 1.96% in March 1991 to 1.33% in March 2009. Further, Bank of
Maharashtra has shown variation from 6.84% in March 1993 to 1.09% in March
2009. However, the deviation is due to the lack of capital. Central Bank of India has
shown reasonable variation from 0.65%, March 1995 to 1.06%, March 2009. UCO
bank has shown mild fluctuations from 1.88% in March 1992 to 1.47% in March
2009. It is due to fresh inducement of capital by government. United Bank of India
has shown moderate ratio. Punjab National bank and Punjab and Sind Bank have also
made known temperate trend of this ratio. Vijaya Bank has indicated moderate stable
fluctuations from 0.81% in March 1994 to 0.81% in March 2009.
Thus, the analysis indicates that the banks liquidity was effected due to the liquidity
crunch in global market and inadequate capital maintenance.
.
179
The independent samplet test analysis in Table-4.4 indicates the mean, standard
deviation for private sector and public sector banks. The value of t shown in table
reveals total income/ average total assets (3.321) and total income/ compensation to
employees (9.258) does not show the significant level of 5% of confidence.
Std.
Banks
Mean
Private
150
.1147
.05409
Public
169
.0991
.02690
Private
150 21.6350
22.42342
Public
169
5.6311
Deviation
Sig
t
3.321
9.258
1.45008
This is basically due to the reason of the VRS in many of the banks and compensation
paid to the employees. Public Sector Banks like UCO Bank, United Bank of India and
Central Bank of India had the problem of overstaffing of 20 percent. However it has
been noticed that private sector banks showed better maintenance then public sector
banks.
.000
.000
180
181
182
Further, Chart-4.47 shows the movements of private sector banks for Total Income /
Average total Assets. Axis Bank reveals the stable trend from the year 0.17%, March
1995 to 0.11%, March 2009. It is due to fluctuation in economic scenario. Bank of
Rajasthan indicated fluctuations from 0.11%, March 1993 to 0.09%, March 2009. The
reason for decline is shortage of capital and rise in NPAs. Bharat Overseas Bank Ltd.
reveals the decreasing trend from 0.11%, March 1995 to 0.08%, March 2009. It may
be due to change in reforms and policy. Dhanalakshmi Bank has shown fluctuations
from 0.13%, March 1995 to 0.1%, March 2009. The decline is due to variations in
total income. The HDFC Bank has shown moderate trend from 0.15%, March 1991 to
0.12%, March 2009. However, the decrease is due to effects of global meltdown.
Further, ICICI Bank reveals the trend of fluctuation from 0.17%, March 1995 to
0.1%, March 2009. It is due to lack of returns. Jammu & Kashmir Bank Ltd. has
shown the moderate trend from 0.1%, March 1993 to 0.09%, March 2009. The reason
for moderate trend is low NPAs which helped to maintain liquidity. It may also be
seen from chart that Kotak Mahindra Bank Ltd. has shown drop in this ratio from
0.41%, March 1991 to 0.13%, March 2009. It is due to rise in the percentage of NPAs
and shortage of liquidity. South Indian Bank ltd. has shown diminishing trend from
0.14%, March 1995 to 0.1%, March 2009. The plunge is due to lack of adequate
capital. Yes Bank Ltd. has shown no significant variation in returns since it operations
from 2005.
Chart-4.48 shows the development of public sector banks for Total Income/ Average
Total Assets. Bank of Baroda has shown the moderate decline from 0.13%, March
1991 to 0.09%, March 2009 due to increase in NPA, the asset turnover was affected.
Bank of India indicated 0.12%, March 1991 to 0.1%, March 2009, which has shown
the reasonable trend. Further, Bank of Maharashtra has shown variation from 0.11%
in March 1993 to 0.09% in March 2009. However, the fluctuation is due to the lack of
capital. Central Bank of India has also shown reasonable trend from 0.12%, March
1995 to 0.09%, March 2009. It may be due to shortage of adequate funds. It may also
be seen from chart that UCO bank has revealed improving trend from 0.09%, March
1992 to 0.99%, March 2009. It is the result of inducement of fresh capital by
government. United Bank of India has revealed moderate ratio. The reason for the
moderate ratio is due to VRS provided by the bank to its employees. Punjab National
bank and Punjab and Sind Bank have also shown moderate trend of this ratio. Vijaya
183
184
185
Bank has projected minor fluctuations from 0.11% in March 1994 to 0.1% in March
2009. It may be due to liquidity shortage.
Further, Chart-4.49 shows the movements of private sector banks for Total Income /
Compensation to Employees. Axis Bank reveals the decline from the year 31.93%,
March 1995 to 13.85%, March 2009. It is due to more of expenses. Bank of Rajasthan
indicates moderate rise from 5.27%, March 1993 to 7.25%, March 2009. It is due to
liquidity fluctuations faced by the banks. Bharat Overseas Bank Ltd. reveals the
decreasing trend from 7.51%, March 1995 to 7.21%, March 2009. The variations have
been due to change in reforms and policy. Dhanalakshmi Bank has revealed
improvement from 6.03%, March 1995 to 7.83%, March 2009. It is due to increase in
current assets. It may be seen from the chart that the HDFC Bank has indicated
significant increase from 64.4%, March 1991 to 78.87%, March 2009. Further, ICICI
Bank reveals the decline from 15.75%, March 1995 to 0.27%, March 2009. However,
it is due to lack of adequate returns. Jammu & Kashmir Bank Ltd. has registered an
increase from 7.58%, March 1993 to 10.84%, March 2009. Kotak Mahindra Bank
Ltd. has shown plunge in this ratio from 73.93%, March 1991 to 6.24%, March 2009.
It is due to rise in the percentage of NPAs and shortage of liquidity. South Indian
Bank ltd. has shown increasing trend from 5.61%, March 1995 to 9.49%, March
2009. It is due to increase in advances. Yes Bank Ltd. has shown increase from 2.26%
from March 2005 to 11.37%, March 2009.
Chart-4.50 shows the trend of public sector banks for Total Income/ Compensation to
Employees, Bank of Baroda has shown the moderate trend from 7.47%, March 1991 to
7.56 %, March 2009. It may be due to fluctuations in returns. Bank of India indicated
reasonable rise in trend 7.24 %, March 1991 to 10.01%, March 2009. Further, Bank of
Maharashtra has shown increase from 3.83%, March 1993 to 8.32%, March 2009. The
fluctuation is due to the inducement of capital by government. Central Bank of India
has shown reasonable improvement from 3.96%, March 1995 to 9.06%, March 2009.
UCO bank has also shown improvement from 5.26%, March 1992 to 8.15%, March
2009. It is due to capital inducement by government. United Bank of India has shown
moderate ratio. Punjab National bank and Punjab and Sind Bank have also indicated
moderate ratio. Vijaya Bank has projected a rise from 4.55%, March 1994 to 10.04%,
March 2009. It is due to liquidity shortage.
186
Thus the analyses indicates that the asset turnover ratio of banks have been affected
by the returns the banks have earned and the VRS provided by the banks to its
employees.
187
Capital
Adequacy
Sig.
Ratios
Banks
Capital
Private
adequacy
Mean
Std. Deviation
150
9.9571
6.49617
169
9.6793
6.44442
150
6.7116
5.63393
169
6.2851
5.46857
150
2.1441
2.28456
169
2.2514
2.30404
.383
.937
Public
Private
.685
.800
Tier-1 (in
per cent)
Public
Tier-2 (in
Private
per cent)
Public
-.417
.666
The independent samplet test analysis in Table- 4.5 indicates the mean, standard
deviation for private sector and public sector. The value of t as shown in Table-4.5
188
in case of Capital Adequacy ratio (.383) and tier-I (.685) are showing the 5% level of
significance, however tier-II (.417) does not show the 5% level of significance. The
reason for insignificance level is due to low maintenance of this ratio in the public
sector banks. The low maintenance is due to short of liquidity with the public sector
banks. The private sector showed better results of maintaining capital adequacy than
the public sector banks.
189
190
191
Further, Chart-4.51 shows the developments of private sector banks for Capital
Adequacy Ratio, Axis Bank reveals a stable trend from the year 14.43%, March 1995
to 13.69%, March 2009. Bank of Rajasthan indicates increase from 8.74%, March
1993 to 12%, March 2009. It is due to fluctuations in capital. Bharat Overseas Bank
Ltd. reveals the decreasing trend from 12.5%, March 1995 to 11.24%, March 2009. It
is due to change in reforms and policy. Dhanalakshmi Bank has revealed
improvement from 8.93%, March 1995 to 14.44%, March 2009. It is due to increase
in current assets. The HDFC Bank has shown moderate trend in maintenance of this
ratio till March 2009. Further, ICICI Bank reveals the fluctuating trend from 13.04%,
March 1995 to 15.92%, March 2009. Jammu & Kashmir Bank Ltd. has shown the
moderate trend from 15.88%, March 1993 to 14.48%, March 2009. It is due to NPAs
and increase in finances from state projects. Kotak Mahindra Bank Ltd. has revealed
maintenance in this ratio from 30.47%, March 1991 to 19.86%, March 2009. South
Indian Bank ltd. has shown optimistic trend i.e. from 8.27%, March 1995 to 14.76%,
March 2009. It is due to increase in advances. Yes Bank Ltd. has shown minor
variation from 18.8% from March 2005 to 14.5% in March 2009. It may be due to
economic fluctuations.
Chart-4.52 indicates the trend of public sector banks for Capital Adequacy Ratio.
Bank of Baroda has shown the minor increase from 11.2%, March 1991 to 12.88%,
March 2009. Bank of India indicated reasonable fluctuations from 9.11%, March
1991 to 13.21%, March 2009. Further, Bank of Maharashtra has shown variation from
9.07%, March 1993 to 10.75%, March 2009. The variation is due to the enticement of
capital by government. Central Bank of India has revealed an increase from 9.41%,
March 1995 to 11.75%, March 2009. It is due to encouragement of capital. UCO bank
has shown improving trend from 3.16%, March 1992 to 9.75%, March 2009. It is the
result of inducement in capital. United Bank of India has revealed moderate ratio.
Punjab National bank and Punjab and Sind Bank have also shown moderate ratios.
Vijaya Bank has shown improvement from 10.3%, March 1994 to 13.08%, March
2009 due to maintenance of capital.
192
193
194
Further, Chart-4.53 shows the trend of private sector banks for Tier-I. Axis Bank
reveals a decline from 11.6%, March 1995 to 9.26%, March 2009. It is due to more of
expenses and rise in interest rates. Bank of Rajasthan indicates decline from 8.74%,
March 1993 to 6.45%, March 2009. It may be due to shortage of capital. Bharat
Overseas Bank Ltd. reveals the decreasing trend from 11.78%, March 1995 to 8.41%,
March 2009. It is due to change in reforms and policy. Dhanalakshmi Bank has shown
a decrease from 8.59%, March 1995 to 6.45%, March 2009. It is due to fluctuations in
debt. The HDFC Bank has shown moderate trend in maintenance of this ratio.
Further, ICICI Bank reveals the fluctuating trend from 13.38%, March 1995 to
12.16%, March 2009. Jammu & Kashmir Bank Ltd. has shown the moderate trend
from 15.51%, March 1993 to 13.8 %, March 2009. Kotak Mahindra Bank Ltd. has
shown plunge in this ratio from 30.47%, March 1991 to 16.01%, March 2009. It is
due to rise in the percentage of NPAs and shortage of liquidity. It can also be seen
from chart South Indian Bank ltd. has indicated increasing trend from 8.4%, March
1995 to 13.22%, March 2009. It is due to increase in advances. Yes Bank Ltd. has
shown decline from 18.64% from March 2005 to 8.3%, March 2009. This variation is
due to market fluctuations.
Chart-4.54 shows the developments of public sector banks for Tier-I. Bank of Baroda
has shown minor decrease from 9.05%, March 1991 to 7.79%, March 2009. Bank of
India indicated increase from 7.46%, March 1991 to 8.73%, March 2009. Further,
Bank of Maharashtra has shown decrease from 7.89%, March 1993 to 5.45%, March
2009. It may be seen from the chart that Central Bank of India has revealed
reasonable decreasing trend from 7.21%, March 1995 to 6.24%, March 2009. UCO
bank has also shown decrease from 7.22%, March 1992 to 5.3%, March 2009 as fresh
capital was induced by government. United Bank of India has shown moderate ratio.
Punjab National bank and Punjab and Sind Bank have also shown moderate ratio.
Vijaya Bank has revealed an increase from 5.7%, March 1994 to 7.71%, March 2009.
It is due to maintenance of capital.
195
196
197
Further, Chart-4.55 indicates the trends of private sector banks for Tier-II. Axis Bank
reveals an increase from 3.16%, March 1995 to 4.43%, March 2009. Bank of
Rajasthan also indicates an increase from 0.63%, March 1993 to 5.55%, March 2009.
It is due to inducement of capital. Bharat Overseas Bank Ltd. reveals an increasing
trend from 1.22%, March 1995 to 2.83%, March 2009. The fluctuation is due to
change in reforms and policy. Dhanalakshmi Bank has revealed decrease from
2.16 %, March 1995 to 1.54%, March 2009. It can be seen from the char that HDFC
Bank has shown moderate trend for maintenance. Further, ICICI Bank reveals a
moderate trend of fluctuation from 3.74%, March 1995 to 3.76 %, March 2009.
Jammu & Kashmir Bank Ltd. has revealed a decrease from 3.31%, March 1993 to
0.68%, March 2009. Kotak Mahindra Bank Ltd. has shown upbeat trend in this ratio
from 0.27%, March 1991 to 3.85%, March 2009. South Indian Bank ltd. has shown
reasonable trend from 2%, March 1995 to 1.54%, March 2009. It is due to
fluctuations in advances. Yes Bank Ltd. has shown positive variation in trend from
0.17% from March 2005 to 6.2%, March 2009. It is due to maintenance of
subordinated debts.
Chart-4.56 shows the development of public sector banks for Tier-II. Bank of Baroda
has shown the moderate variation from 4.25%, March 1991 to 5.09%, March 2009.
Bank of India indicated increase from 1.65%, March 1991 to 4.48%, March 2009.
Further, Bank of Maharashtra and UCO Bank have also shown increase from 1.87%,
March 1993 to 5.3%, March 2009 and 2.41%, March 1992 to 4.45%, March 2009
respectively. The variation is due to enticement of capital by government. It may
further be seen from the chart that Central Bank of India indicates reasonable trend
from 4.67%, March 1995 to 5.51%, March 2009. United Bank of India has shown
moderate ratio. Punjab National bank and Punjab and Sind Bank have also shown
reasonable ratio. Vijaya Bank has shown minor increase from 4.3%, March 1994 to
5.37%, March 2009.
Thus, the analysis shows that the private sector and public sector banks have
maintained adequate capital adequacy ratio inspite of the fluctuations in the market.
198
4.7 Summary
The present scrutiny covers the comparative performance of private sector and public
sector banks in India from 1991-1992 to 2008-2009. The study has considered various
parameters like profitability, returns, assets, liquidity and capital adequacy for
comparing the performances of private sector and public sector banks.
The various variables of profitability ratio like PBDITA Net of P&E / Total Income
Net of P&E, PBT Net of P&E/Total Income Net of P&E and PAT Net of P&E/ Total
Income Net of P&E are not on significance level of 5%. Rests of the variables have
shown the significant level of 5%. Profitability Ratio charts for banks like HDFC and
SBI have shown the improving performance during the period undertaken for the
study. However, Bank of Maharashtra, UCO Bank, United Bank of India and Bank of
Rajasthan have revealed the negative trend during the years 1992-1997.
The return ratios variables like PBPT Net of P&E/ Average Total Assets, PAT net of
P&E/ Average net worth, PAT/ Average net worth, Cash profits/ Average Networth,
PBPT / Average total assets, PAT net of P&E/ average total assets, PAT/ Average
total Assets do not show the 5% significance level where as rest other variables have
shown significance level. The charts of banks like Bank of Maharashtra, UCO Bank,
Bank of India and Bank of Rajasthan have shown negative trend in the ratios, whereas
SBI and ICICI have also shown the fluctuations in the returns achieved.
The liquidity ratios like Quick Ratio and current ratio shows from the analysis that the
values are at less than 5% level of significance. Charts show that Vijaya Banks
current ratio and Quick Ratio have shown the negative trend during the year 20072008 and 2008-2009. The private sector banks have projected the encouraging trend
in maintaining the liquidity ratio.
The asset turnover ratio variables total income/ average total assets and total income /
compensation to employees does not show the significant level of 5% of confidence.
The charts show the positive movement of the private sector and public sector banks.
The Capital Adequacy Ratio is showing the 5% level of significance, however tier-II
does not show the 5% level of significance. The charts have however shown the
positive drift of the ratios in public sector and private sector banks.
199
In the era of growing competition, the policy changes and the operational
environment in respect of the Indian banking industry, there has been an increased
focus on profitability. Consequently, most of the banks in public sector have shown a
significant improvement in their profit performance and private sector banks continue
to earn higher profit rates.
Public sector banks are facing problems such as overstaffing, confrontation to adopt
new technology etc, because they do not have the type of flexibility that is possessed
by Indian private sector banks; therefore, they are facing serious challenges from
private sector banks and foreign banks. With the changing times, various policy
measures were introduced to improve the performance of the banks but they did not
succeed to the desired level every time.
The Indian banking industry is going through turbulent times and is growing at fast
pace. With the lowering of entry barriers and increasing product lines of banks and
non-banks due to the financial sector reforms, banks are functioning increasingly
under competitive pressures emanating from within the banking system and from the
domestic & international markets.
200
CHAPTER- 5
CONCLUSION & SUGGESTIONS
5.1 Introduction
A retrospect of the proceedings clearly indicates that the Indian banking sector has
come far from the days of nationalization. The Narasimham Committee (1991) laid
the foundation for the reformation of the Indian banking sector. The Committee
submitted two reports, in 1992 and 1998, which emphasized significant thrust on
enhancing the efficiency and viability of the banking sector. As the international
standards became prevalent, banks had to unlearn their traditional operational
methods of directed credit, directed investments and fixed interest rates, all of which
led to deterioration in the quality of loan portfolios, inadequacy of capital and the
erosion of profitability.
The recent international consensus on preserving the soundness of the banking system
has veered around certain core themes. These are: effective risk management systems,
adequate capital provision, sound practices of supervision and regulation,
transparency of operation, conducive public policy intervention and maintenance of
macroeconomic stability in the economy.
Until recently, the lack of competitiveness vis--vis global standards, low
technological level in operations, over staffing, high Non Performing Assets (NPAs)
and low levels of motivation had shackled the performance of the banking industry.
However, the banking sector reforms have provided the necessary platform for the
Indian banks to operate on the basis of operational flexibility and functional
autonomy, thereby enhancing efficiency, productivity and profitability.
The reforms also brought about structural changes in the financial sector and
succeeded in easing external constraints on its operations, i.e. reduction in CRR and
SLR reserves, capital adequacy norms, restructuring and recapitulating banks and
enhancing the competitive element in the market through the entry of new banks.
India has a well-developed banking system. Indian entrepreneurs and visionaries
found most of the banks in India in the pre-independence era to provide financial
201
5.2 Findings
The profitability ratio analysis conducted in the study reveals that public sector
banks like: Bank of Maharashtra, UCO Bank and Bank of India have shown the
downbeat tendency during 1992-1997. State Bank of India has shown the positive
trend in the performance of profitability ratios while on the other hand Bank of
Rajasthan (private Sector bank) has shown the off-putting presentation in the year
1998-1999. Whereas, HDFC bank has shown the improvement in performance
since liberalization. All the other banks undertaken for the study have shown the
reasonable variable drifts.
The return ratios also showed the fluctuating trend for the public sector banks like:
Bank of Maharashtra, UCO Bank, Bank of India and Punjab National Bank. State
Bank of India have shown improving and positive trend in the returns achieved.
Moreover, private banks like ICICI Bank and Bank of Rajasthan have shown
irregular decline.
The study also reveals that the performance of asset ratios for private and public
sector banks have shown expected optimistic movement. HDFC Bank has shown
positive trend during the study period.
The comparison done on the basis for liquidity ratios shows that Vijaya Bank has
shown negative trend in the year 2008-2009. All public sector banks have been
showing the fluctuating performance in maintaining the liquidity. The private
202
sector banks like Kotak Mahindra bank have been showing irregular inclination in
maintaining adequate ratios of liquidity.
Further, the capital adequacy ratios show the moderate level of ratio maintained
by the private sector and public sector banks.
It is also seen from the study that the private sector and public sector banks did not
have escape from Non- Performing Assets (NPA). Non- performing assets have
been the major reasons which have given the dent on the profitability of the banks.
The cause of rise in NPAs has been basically due to liberal lending norms,
cyclical changes in the industries like steel, iron, textiles, chemical and
engineering. Another major cause for the rise in NPAs is due to excessive
corporate borrowings, the returns got the hit due to global recession in the market.
Public sector banks like, Central Bank of India, UCO Bank, United Bank of India
and Bank of Maharashtra faced the problem of inadequate capital. As stipulated
by the Reserve Bank of India, the banks were required to attain a capital adequacy
ratio of 8 per cent by 31 March 1996. Since quite a few public sector banks were
not fulfilling this requirement, Government of India had to infuse fresh capital in
all the public sector banks. The capital infusion was through issuance of bonds
carrying fixed coupon rates initially at the rate of 7.75 per cent per annum which,
in subsequent issues, was raised to 10 per cent. Bank of Maharashtra incurred
operating losses in 1992-93 which were then identified and attributed to specific
non-productive restructuring measures. In case of Dhanalakshmi Bank (private
sector bank) was also recommended to improve the capital base for better
functioning.
Further, the analyses show that most of the public sector banks are facing the
problem of overstaffing up to 20 percent which is affecting the liquidity of the
banks. However banks like State Bank of India and Vijaya bank are facing the
problem of shortage of headcounts due to the number of retirements taking place
every year in addition to the further expansion plans of the banks. It can also be
seen from the analyses that the private sector banks are not confronting the
problem of workforce.
The analyses also reveal that majorly public sector banks are not technology
responsive. There are many public sector banks branches that are yet to be
203
The banks ability to manage its transition to a technology-oriented and customerdriven organization will determine its future financial performance and market
position. Their ability to improve the quality of their advances portfolio, reduce
NPA levels and most importantly arrest fresh slippage of assets to NPAs would be
a key rating sensitivity.
help
groups
(SHGs)
and
has
credit
linked 23,108
SHGs
Further, it can be seen that unstable top management of Bank of Rajasthan has led
to the downfall in profits and reserves of a bank. RBI has not given any fresh
branch license to the bank in the recent past. Bank of Rajasthan has also not
appointed its chairman since August 2004.
Another fact revealed by the study is that there has been the lack of strategic
planning by public sector banks and Management Information System (MIS) and
also the skill levels required especially in sales and marketing, service operations,
risk management and the overall performance of the organization.
Moreover, the study also shows that the liquidity of the banks was majorly hit by
the global meltdown in the world market.
204
RBI has warned ICICI Bank against the use of coercive methods to recover loans.
As many incidents related to recovery of loans are creating unpleasantness
whereas such type of incidents have not taken place in the recovery of loans for
public sector banks.
The forgoing discussions and the results available revealed that private sector and
public sector banks need to improve on the various aspects. It is imperative for the
banks to improve upon their strengths for comparative advantages.
5.3 Suggestions
The major suggestions and recommendations emerging out on the basis of above
findings of the study are laid down as under:
The public sector banks need to effectively use technology to counter the
challenges posed by the new private sector banks, especially in the retail business.
Better customer services backed by superior technology and the lack of legacy
systems have enabled the new private sector banks to gain market share from the
public sector banks.
Banks should initiate efforts on adopting the new technologies in order to improve
their customer service levels and provide new delivery platforms to them,
especially in the metros and other urban centers. The success of these initiatives
will have a bearing on their banks market position.
The Centralised Banking Solution (CBS) on the Flexcube Platform should be
offered by the banks in all of their branches, as it allows the clients to reap the
benefits of Anywhere/Anytime banking, through multiple delivery channels.
The private and public sector banks should take advantage of the buoyancy in
economic growth and expand credit in all segments including priority sector and
retail. The Bank should increase its share in infrastructure sector and can add new
205
clientele in the areas of corporate finance and export finance. The credit flow to
agriculture should also be improved in conformity with guidelines of
the
206
207
Thus, it is hoped that the findings of this study will help the public and private
sector banks to be more competitive and compatible in the new era of liberlisation.
208
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