CHAPTER- II

REVIEW OF LITERATURE
Remarkable and rapid transformation has taken place in financial and
banking sector in the liberalized and post reform period. As outcome of these,
significant studies were undertaken and significant body of literature has
evolved on the subject. It explores the performance of financial institutions.
The main motive of studies, in general, is to analyze the efficiency and
productivity of banking systems. Such studies and analysis are important from
the policy standpoint. Success or Failure of policy initiatives are identified by
policymakers, researchers and academicians. Framing and Formulating
appropriate policies enables banks to function in a better way and which may
be reflected in safety and soundness of the financing system. Banks play an
important role in the financial markets of developing economy and it is very
important to evaluate whether banks operate efficiently or not.
Banking developments greatly contributed to economic development of
the country. A positive relationship between financial sector development and
economic growth was established by economists in various empirical studies.
(Goldsmith 1969, King and Levine 1993, Levine 1999, Khan and Senhadji,
2000). In pre-reform period, the commercial banks and other financial
institutions were operating in stable environment with little or absence of
competition. But in the reform period remarkable changes took place in
banking industry. During liberalised era, banking industry entered new phase
and became globally competitive. It has to fulfill both social and national
objectives. In wake of these changes it is necessary to study the performance
of the banks. State Bank of India, being the oldest and largest commercial
bank of the country, contributed remarkably to the development of Indian
banking industry. Therefore it is essential to study the performance of State
Bank of India and its associates in the changed and competitive environment.
As per the topic of the research An Analysis of Performance of SBI and its
associate banks an attempt has been made to study the different studies in
this field to assess the performance of banks in India.

c 34 C

Birla Institute of Scientific Research (1981) 1 attempts to make

comparative analysis of performance of the public banks and the major
private banks since nationalisation. Comparisons are made in terms of ratios
and growth rates. The study brings out that the profitability ratios have been
higher for selected group of the private sector banks than for the nationalised
banks. Though public sector banks has vast network of branches and wide
coverage, yet the credit of taking banking services to large mass of population
goes to private sector banks.
Malhotra R N (1986)2 has highlighted the fact that nationalisation of
Indian commercial banks has brought dramatic changes in the profile of
Indian banking. Banking has emerged as an effective catalytic agent of socioeconomic change. It has acquired a broad base and has also emerged as an
agent of development in the rural sector. The new phase of banking will be
characterised by increasing sophistication. Increased sophistication will be
reflected in introduction of modern technology and changes in the composition
of bank business. Policies and specific measures are being framed to bring
about all round improvement in banking operations.
Robert M (1991)3 The study attempts to analyze the trends in
profitability, assess the operational efficiency of Public sector banks,
estimated the behavioural function of profit effecting profit for individual banks
and for the banking industry as a whole. The study covers 14 banks
nationalised in 1969. These were classified as large scale banks, medium
scale banks and small scale banks in order to make inter-bank comparisons.
The study covers a period of 15 years from 1973 to 1987. Herfindhals index
of concentration is used to study the performance of each unit of the system
with reference to the system as a whole. Bank-wise trend in profitability
showed that out of 14 banks, 12 showed decline in profitability during this
period. Operational efficiency based on manpower expenses and other
expenses to total staff revealed that CBI, UCB and DB were the highest cost
effective banks among large, medium and small banks.
1

Birla Institute of Scientific Research, "Banks Since Nationalisation", Economic Research Division,
Allied Publishers, News Delhi, 1981.
Malhotra R N, Banking Enter a New Phase, The Journal of the Institute of Bankers, Special
Number: Bank Economists Conference, Vol. 57, No. 2, April-June 1986, pages. 94-103.
Robert M, Profitability in Public Sector Banks in India Thesis Abstract, The Journal of Institute
of Public Enterprises, Vol. 14(4), 1991, pages. 315-321.

c 35 C

Singh Jagwant (1993) 4 in his book is concerned with trends and

changes in productivity with particular emphasis on employee and branch
productivity in the Indian banking industry. It determines the level of
productivity and its growth during the period 1969-85. The 22 public sector
banks i.e. banks of the SBI group and 14 nationalised in 1969 have been
taken up for the study. The study attempts to make cross-sectional and intertemporal analysis on the basis of 17 indicators. The indicators have been
divided into 3 categories which measure labour productivity, branch
productivity and financial productivity. T-scores have been used for giving
ranking to the banks. The ranking of the banks reveal that most significant
improvement in the ranking was achieved by Indian Bank and Indian
Overseas Bank. United Commercial Bank recorded maximum deterioration.
From the SBI group the performance of State Bank of India was better.
Agarwal R N (1993) 5 in his paper analysed the profits of Public Sector
Banks since their nationalisation and discuss the determinants of profitability.
The study covers State Bank Group and Nationalized Bank Group. Time
series data for the period 1970-1987 has been used. The profit equation is
estimated by ordinary least square method. Empirical results indicate that
profitability of public sector banks has been adversely affected by increasing
statutory reserve ratios, lending to priority sectors at lower rates of interest,
expansion of bank branches in the rural and semi-urban regions and rising
wages of employees. Declining labour productivity has also adversely affected
profitability. Time deposits are found important to encourage profitability. The
two banking groups are found significantly different in their financial
performance.
Zacharias Thomas (1997) 6 This study is undertaken to review and
analyze the performance effectiveness of Syndicate Bank and other
Nationalized banks in India using an Economic Managerial- Efficiency
Evaluation Model (EMEE Model) developed by researcher. A period of ten
years from 1984 to 1993-94 is taken for the study. Thomas in this study found
4

Singh Jagwant, Indian Banking Industry- Growth and Trends in Productivity, Deep and Deep
Publications, New Delhi, 1993.
Agarwal R N, Analysis of Profitability of Public Sector Banks: A Case for Financial Sector
Reforms, Journal of Income and Wealth, Vol. 15, No. 2, 1993, pages. 123-131.
Zacharias Thomas, Performance effectiveness of Nationalized Banks- A case stydy of Syndicate
Bank, Ph.D thesis, Cochin University, Kochi, Finance India, Vol. XIV, March, 1997, pages 187192.

c 36 C

that Syndicate Bank got 5th position in capital adequacy and quality of assets,
15th in profitability, 14th position in social banking, 8th in growth, 7th in
productivity and 15th position in customer service among the nationalized
banks. Further, he found that five nationalized banks showed low health
performance, seven low priority performance and eleven low efficiency
performance in comparison with Syndicate Bank.
Das Abhiman (1997) 7 in paper examines the efficiency of Indian
banking. Overall efficiency is decomposed into allocative and technical
efficiency. Technical efficiency is further decomposed into pure technical
efficiency and scale efficiency. Comparison of the efficiency of banks prior to
and after deregulation is done. A non-parametric frontier methodology has
been utilised to derive several efficiency measures for public sector banks in
India for the years 1970, 1978, 1984, 1990 and 1996. The results indicate that
the State Bank of India and its Associates are more efficient than the
nationalised banks.
Shajahan K M (1998)8 in paper seeks to analyze the trends in priority
sector bank lending. It was held that in the pre-nationalisation period the
crucial sectors were neglected. Lending to priority sectors became as an
essential component of national agenda after bank nationalisation. Banking
sector reforms had negative impact on lending to priority sectors. The
percentage of credit channelled to priority sectors of the economy has been
on the decline. As a result of RBI guideline that 40 percent of net bank credit
should be provided for the priority sectors of the economy, there was shortfall
in priority sector credit in individual states.
Das Abhiman (1999) 9 evaluates the inter-bank performance of Public
sector banks during the reform period. It made use of sequential
decomposition model for profitability analysis. This study was carried out for a
period of three years i.e. 1992, 1995, 1998 in order to study the changing
pattern of profitability of public sector banks at various points of time in the
reform period. Variables used for the profitability decomposition model are
7

Das Abhiman, Technical, Allocative and Scale Efficiency of Public Sector Banks in India, RBI
Occasional Papers Vol. 18, No. 2 & 3, Special Issue, June-September, 1997.
Shajahan K M, Priority Sector Bank Lending- Some Important Issues, Economic & Political
Weekly, October 17-24, 1998.
Das Abhiman Profitability of Public Sector Banks: A Decomposition Model, Reserve Bank of
India Occasional Papers, Vol. 20, No. 1, Summer, 1999, pages 55-81.

c 37 C

working fund, operating profit, spread and burden. Public Sector banks have
recorded a reduction in the burden of raising working funds in the post reform
period. Profitability indicated relatively high degree of variability. Banks need
to concentrate on improving customer services to become more profitable and
efficient.
Athma Prashanta (2000) 10 made an attempt to evaluate the
performance of Public Sector Commercial banks with special emphasis on
State Bank of Hyderabad. The period of the study for evaluation of
performance is from 1980 to 1993-94. Trends in deposits, various
components of profits, trends in Asset Structure of SBH are analyzed. It
evaluated the level of customer satisfaction and compared the performance of
SBH with other PSBs, Associate Banks of SBI and SBI. Statistical techniques
like ratios, percentages, compound annual rate growth and averages are
computed for the purpose of meaningful comparison and analysis. A
comparison of SBH performance in respect of resource mobilization with other
banks showed that the average growth of deposits of SBH is higher than any
other bank group. Profits of SBH showed an increasing trend a more than
proportionate increase in spread than in burden. Finally, majority of the
customers have given a very positive opinion about the various statements
relating to counter service offered by SBH.
Altunbas Yener, Evans Lynne & Molyneux Philip (2001) 11 in paper
attempts to find whether the ownership structure of banks influence their
economic behaviour. A variety of models are used for evaluating cost and
profit efficiencies as well as the impact of technical progress for private
commercial, public savings and mutual cooperative banks operating in the
German banking market between 1989 and 1996. Intermediation approach is
used for the definition of inputs and outputs. Inefficiency measures are
estimated using the stochastic frontier approach and distribution free
approaches. The stochastic approach labels a bank as inefficient if its costs
are higher or profits lower. It is concluded that there is little evidence to

10

11

Athma Prashanta, Performance of Public Sector Commercial Banks- A Case Study of State Bank
of Hyderabad, Finance India, Indian Institute of Finance, Vol. 14, No. 1, March 2000, pages. 183186.
Altunbas Yener, Lynne Evans, Philip Molyneux, Bank Ownership and Efficiency, Journal of
Money, Credit and Banking, Vol. 33, No. 4, November 2001.

c 38 C

suggest that privately owned banks are more efficient than their mutual and
public sector counterparts in German banking market.
Dasgupta Debajyoti (2001) 12 in paper attempts to analyse impact of
reforms on the profitability of the Indian Public Sector Banks. The study has
selected six banks i.e. State Bank of India, Canara Bank, Punjab National
Bank, Syndicate Bank, Vijaya Bank, Corporation Bank. Time period for the
study is 1985-86 to 1996-97. The study made use of two key parameters Net
Profit and Net Worth. It was observed that two banks with lowest owner equity
that Vijaya Bank and Corporation Bank have attained better results. Except
State Bank of India all other banks along with Public sector banks as a whole
recorded a negative growth in profitability. The year 1996-97 was considered
year of recovery. Higher owner equity has helped the State Bank of India to
yield good result whereas bigger size in case of Canara Bank has helped the
bank to achieve better result.
Saha Gurudas (2001) 13 in study analyses the major financial
parameters of Public and Private Sector Banks and highlights the strategic
importance of banking cost determination and cost management. Public
sector banks are unable to compete private sector banks due to poor
governance. The financial performance of public sector banks is the lowest
whereas that of SBI group is better in all ratios. SBI group have registered a
higher growth in all the business parameters as compared to Nationalised
banks but in the revenue parameters they are below nationalised banks, all
private banks and foreign banks. It is indicated that public sector banks are
losing its market share to private sector banks and foreign banks.
Janaki J (2001)14 highlighted that due to extensive liberalisation
banking system has to face both internal and external competitive pressures.
The task before the Indian banking in the new millennium is to transform its

12

13

14

Dasgupta Debajyoti Profitability of Indian public sector banks in the light of liberalisation of
Indian economy- An overview, The Management Accountant, Vol. 36, No. 9, September 2001,
pages 693-699.
Saha Gurudas, Financials of Indian Banking Industry and the Competitive Viability of the Public
Sector Banks, The Management Accountant, Vol. 36, No. 5, May 2001, pages. 373-386.
Janaki J, Impact of Liberalization on Banking, in S. Gurusamy (ed.) Banking in the New
Millennium: Issues, Challenges and Strategies, Kanishka Publishers, New Delhi, 2001, pages.
109-117.

c 39 C

banking system from domestic one to truly international one. Extensive

liberalisation determined stabilisation and growth. Banks and other financial
intermediaries are refocusing on core competencies and strategies. Initiatives
for technological change have been integral part of the reform process. Legal
reforms must support and complement financial sector reforms by providing
for internal governance as well as external discipline. Mergers and
Acquisitions have emerged as the appropriate approach to consolidate a
banks position in the aggregate banking system. Banks should first identify
their strengths and weaknesses and then venture into new related areas.
Subrahmani & Raghav (2001)15 analysed and compared the efficiency
in six public sector banks, four private sector banks and three foreign banks
for the year 1996-1997. Operational efficiency is calculated in terms of total
business and salary expenditure per employee. The analysis revealed that
higher per employee salary level need not result in poor efficiency and
business per employee efficiency co-efficient was calculated. Among the
PSBs, Bank of Baroda registered the high efficiency and operating profit per
employee. Among the private sector banks Indus Bank followed by Citi Bank
registered highest and second highest operating profit per employee
respectively. However, among the Nationalised Banks there existed wide
variations in efficiency.
Das Abhiman (2002) 16 in his paper seeks to examine the
interrelationships among risk, capital and productivity change for the public
sector banks in India. The paper studies the public sector banks for the period
1995-96 to 2000-2001. The analysis reveals that capital adequacy has a
negative and significant effect on asset quality. The results imply that
inadequately capitalised banks have a lower productivity and are subject to a
higher degree of regulatory pressure than adequately capitalised ones. Poor
performers are more prone to risk taking than better performing banking
organisations. Finally, it has been laid that lowering government ownership
tends to improve productivity.

15

16

Subrahmani & Raghav, Operational Efficiency of Banks in S. Gurusamy (ed.) Banking in the
New Millennium- Issues, Challenges and Strategies, Kanishka Publishers, New Delhi, 2001.
Das Abhiman Risk and Productivity Change of Public Sector Banks, Economic & Political
Weekly, February 2, 2002.

c 40 C

Chaudhuri Saumitra (2002) 17 in paper observed that profitability of

public sector banks is continuously declining. Public sector banks are facing
triple jeopardy. Their market share and profitability are declining. Balance
sheets do not pose strong picture. Many serious difficulties continue to beset
the banking sector. Efficient banking does not simply mean to tell bankers
exactly what they should and should not do. The major factor responsible for
inefficiency in Public sector banks is state ownership. Banking reforms
initiated in 1991 transformed the face of banking in India including that of
Public sector banks.
Mathur K B L (2002)18 in paper examined the arguments extended to
a case for the privatisation of public sector banks mainly nationalised banks.
Re-capitalisation of Public sector banks is a huge burden on the government
budget. State ownership of banks reduces competition and thus breeds
inefficiency. There is no evidence that state ownership lowers the probability
of banking crisis. Private and foreign banks stimulate efficiency, innovation
and economic growth. It is held that the arguments which are put forward for
the privatisation of PSBs are not strong. Private ownership may lead to crisis
if the regulatory system is unable to control the adverse extraneous
pressures. State ownership of banks should be maintained until the conditions
such as smooth legal system, strong regulatory framework, reduced fiscal
deficit and a sharp reduction in controls on flow of foreign capital are
appropriate for privatisation.
Nagar Nirupma & Mishra Jitendra Kumar (2002) 19 The present study
is confined to State Bank of Indore which has large spread of branches in
most of the parts of Madhya Pradesh. The high level of NPAs of the bank in
Madhya Pradesh causes serious concern for the bank under study. Reasons
for the piling up of NPAs are political interference in the working of banks,
lengthy judicial process, time and costs overrun in project implementation,
shortage of raw materials along with power shortage etc. It is suggested that
to succeed in the changed scenario of globalisation NPAs will have to be
17

18

19

Chaudhari Saumitra Some Issues of Growth and Profitability in Indian Public Sector Banks,
Economic & Political Weekly, June, 2002.
Mathur K B L Public Sector Banks in India- Should They Be Privatised, Economic & Political
Weekly, June 8, Vol. XXXVII, No. 23, 2002.
Nagar Nirupma & Mishra Jitendra Kumar Non-Performing Assets of Commercial Banks- A Case
Study of State Bank of Indore, Madhya Pradesh Journal of Social Sciences, Vol. 7, No.1, 2002,
pages. 102-112.

c 41 C

brought down to a significantly low level. The State Bank of Indore shows a
declining trend of its NPAs on a year by year basis but it is the result of
recovery and not because of assessment capacity. Incidence of NPAs can be
tackled through better selection of borrowers, more scientific credit appraisal
and supervision.
Aparna T (2002) 20 in article highlights the fact that SBI is the largest
and oldest public sector bank of India. Due to greater competitive pressures
and changes in Indian Economy it has felt the need to revitalize and
restructure itself. SBI is planning for technology upgradation. In order to
increase its income it has shifted its focus from traditional banking to retail
finance and housing finance. It is State Bank of India and its associates that
have developed banking habit in the country. The financial performance of
banks has been satisfactory over a period of time. Total income, operating
profit and Net interest income showed a rising trend. SBI has the largest
holdings of government securities. SBI has computerised 80% of its business
operations and has highest number of ATMs in the country. Housing finance
is the new thrust of SBI. SBI targeted to bring down its NPAs. SBI should
continue its revitalising and reorienting process so that it can keep its flag
flying high even amidst cut throat competition.
Ram Mohan TT (2002) 21 in his paper evaluated the performance of
PSBs since deregulation in absolute and relative terms and attempts to
understand the factors underlying their improved performance. In India due to
regulatory norms, government-owned banks have minimal exposures to risk
assets such as real estate and stock market. Restructuring in banking backed
by the required capital has produced healthy results. It was observed that the
efficiency of the banking system as a whole measured by declining spreads
has improved. The performance of public sector banks has improved both in
absolute and relative terms.
Bhide MG, Prasad A, Ghosh Saibal (2002)22 The paper presents in
brief the highlights of the important aspects of financial sector reform and the
20

21

22

Aparna T, State Bank of India: Flying High, Chartered Financial Analyst, Vol. 8, Issue. 9,
September 2002, pages. 60-61.
Ram Mohan TT, Deregulation and Performance of Public Sector Banks, Economic & Political
Weekly, Vol. XXXVII, No. 5, February 2, 2002, pages. 393-397.
Bhide MG, Prasad A, Ghosh Saibal, Banking Sector Reforms: A Critical Overview, Economic &
Political Weekly, Vol. XXXVII, No. 5, February 2, 2002, pages. 399-408.

c 42 C

weaknesses and some of the crucial issues faced by the banking system at
the present juncture. The paper concludes that implementation of banking
sector reforms had achievements as well as pitfalls. It is important to strike a
balance and find a middle path between the over zeal for intervention and
ability of banking system to self rectify its deficiencies. Banking authorities are
under constant challenge of identifying newer risks and strengthening the
banking sector to keep pace with changes in technology.
Pandey Rajendra & Bandyopadhyaya Sanjiban (2003) 23 in paper
attempts to ascertain the factors affecting the profitability of performance of
PSBs on the basis of Break Even Analysis. In this study the cost-volume-profit
analysis helps in determining the optimum level of banks performance. The
study covers all the 27 public sector banks of India. Time period of the study
is from 1990-2000. It is observed that performance of all the banks together is
poor which is supported by negative profitability performance during four out
of ten years. Results of multiple regression analysis, suggests that the
profitability is influenced by operating cost, interest earned, interest paid and
other income. It is suggested that in order to improve margin of safety profit
earning bank must reduce operating cost and losing bank must reduce the
burden of interest payment.
Singh Kunal (2003) 24 This article highlights the fact that due to
competitive pressures the largest public sector bank that is State Bank of
India is entering into businesses like credit cards, insurance, brokerage, gold
etc. It has also focused on the most profitable home loan business. It is
entering retail business by employing new and innovative schemes. SBI is
one of the most profitable banks in India. Net Profits, Operating Profits, Net
Interest Income, Advances, Average resources deployed in treasury
operations, average deposits has shown an interesting trend over a period of
time. SBI is also planning to introduce special Prime Lending Rate (PLR) for
housing loans. SBI has introduced schemes for Doctor, Teacher and Justice
under which they would be provided loans at a cheaper rate. SBI has tied up

23

24

Pandey Rajendra & Bandyopadhaya Sanjiban Cost-Volume-Profit analysis and Banks

Performance A Case Study of Public Sector Banks, The Management Accountant, Vol.38, No. 6,
June 2003.
Singh Kunal, State Bank of India: Aggressive Game Plans, Chartered Financial Analyst, Vol. 9,
No. 5, 2003, pages. 27-28.

c 43 C

with Maruti Udyog Ltd for financing cars at cheaper rates. SBI is also selling
life-insurance and health care products.
Rao Srinivasa K S & Prasad Chowdari (2003)25 The paper makes
the survey on banks over a period of time and compared Indian public sector
banks among themselves as a closed model and later with other banks as an
open model using various statistical techniques like cluster analysis. Cluster
analysis was done in case of closed model in order to compare 27 public
sector banks among themselves. Similarly, cluster analysis was done in case
of open model to compare PSBs with private sector banks and foreign banks.
In case of closed model, 8 out 0f 27 banks were graded as best banks. In
open model out of 86 banks 11 are considered best banks.
Chellasamy P & Sumathi N (2004) 26 depicted the real picture of
Indian banking. Indian banking has become highly proactive and dynamic
entity. This transformation occurred due to liberalization and economic
reforms initiated in nineties. The nationalized banks continue to dominate the
Indian banking arena. State Bank of India is the largest bank in India in terms
of profits, assets, deposits, branches and employees. It is concluded that
Indian banking industry is currently in a transition phase. Indian banks are not
only keen to tap the domestic market but also to compete in the global market
place. New foreign banks have been equally keen to gain a foothold in the
Indian market.
Sisodiya Amit Singh & Rao N Janardhan (2004) 27 in article
highlighted the performance of SBI. SBI is largest Public Sector Bank in India.
It has business in retail and wholesale market and provides products like
credit cards, insurance, gold etc. The bank has wide network of rural, semi
urban, urban and metropolitan branches. Its major business areas are
corporate banking, International banking, Domestic banking, Associate Bank
divisions for looking after the working of these banks. Credit division is formed
for monitoring the overall credit finance, corporate development and

25

26

27

Rao Srinivasa K S & Prasad Chowdari, Can Public Sector Banks Compete with Foreign/Private
Banks? A Statistical Analysis, Paper submitted to the International Conference on Business &
Finance to be held during 15-16, December 2003 at ICFAI Business School, Hyderabad.
Chellasamy P & Sumathi N Role of Banking System in India, Journal of Global Economy, Vol.
2, No. 4, December, 2004, pages 289-295.
Sisodiya Amit Singh & Rao N Janardhan, Spotlight: State Bank of India, Chartered Financial
Analyst, Vol. 10, No. 11, 2004.

c 44 C

Inspection. State Bank of India has the largest ATM network in India. It is
expanding its business in foreign countries also.
Ram Mohan TT & C Ray Subhash (2004) 28 in paper attempts to
compare performance among three categories of banks- Public, Private and
Foreign. The study made use of physical quantities of inputs and outputs. It
compared the revenue maximisation efficiency of banks during 1992-2000.
Data Envelopment Analysis is used in order to make comparisons. It is
concluded that public sector banks performed significantly better than private
sector banks. Superior performance of public sector banks is due to higher
technical efficiency rather than higher allocative efficiency. Because of its
size, State Bank of India is found to efficient on all counts in VRS model.
Using financial measures of performance, it is found that there is convergence
in performance between public and private sector banks in the post-reform
era.
Sooden Meenakshi & Bali (2004) 29 has stressed that the public sector
banks should give emphasize on both economic and social profits in a
desirable mix to make themselves a strong pillar of modern development
framework. They analyzed the profitability of the public sector banks in both
pre and post reform period for the year 1982 to 2000. In late 1990s economic
profitability of public sector banks started improving and priority sector lending
started falling. It led to erosion of social profitability in public sector banks.
Singh Bhupinder Pal (2004)30 The objective of the present study is to
analyse the impact of banking reforms on technical efficiency of public sector
banks, to find interbank variation in technical efficiency, to find impact of
banking sector reforms on the total factor productivity growth of the Indian
public sector banks. Time period for the study is taken from 1987-2003. Data
Envelopment Analysis and DEA- Malmquist Product Index have been used. It
is concluded that banking sector reforms had a favourable impact on
productive efficiency of Indian Public Sector Banks.

28

29

30

Ram Mohan TT & C Ray Subhash, Comparing Performance of Public and Private Sector BanksA Revenue Maximisation Efficiency Approach, Economic & Political Weekly, March 20, 2004.
Sooden Meenakshi & Bali, Profitability in Public Sector Banks in India in the pre and post reform
period, India Management Studies Journal, Vol. 8, No. 2, October 2004, pages. 69-80.
Singh Bhupinder Pal, Banking Reforms and Productive Efficiency of Indian Public Sector
Banks, Dissertation, Master of Philosophy in Economics, Punjabi University, Patiala, 2004.

c 45 C

Prasad A & Ghosh Saibal (2005) 31 in paper analyzed whether

competition has yielded significant benefits in terms of greater product
sophistication and cost reduction. The study used annual data on scheduled
commercial banks for the period 1996-2004. The study considers 27 stateowned banks, 15 old and 8 new private sector banks, 14 foreign banks. The
study reveals that the competitive nature of the Indian banking industry is not
significantly different from the banking system in other countries, particularly
in view of the fact that nearly 75 percent of banking system assets is with
state-owned banks. Recent trend towards consolidation led to more rather
than less competition in the banking sector. The empirical evidence reveals
that the Indian banking system operates under competitive conditions and
earns revenues as if under monopolistic competition.
Patnaik U C & Patnaik Manoj (2005) 32 The overall objective of the
study is to evaluate the profitability of public sector banks in general and SBI
in particular. The present study covers the ten year period from 1992-93 to
2001-02. The techniques used for analysis include trend analysis, commonsize income statement and ratio analysis with their mean, coefficient of
variation and coefficient of correlation. It is concluded on the basis of overall
analysis that the profitability performance of SBI was much better in the postreform era as compared to the pre-reform era of banking sector. Hence, the
hypothesis that with the introduction of reforms in the banking sector, the
profitability of SBI has improved holds good and is accepted. The study
suggests that the level of Non-Performing Assets should be reduced. In order
to raise the level of customer satisfaction, Banks should set up CRM groups
and CRM departments. To improve the profitability and productivity, the banks
should improve extensively their Information and Communication Technology.
Chakrabarti Rajesh & Chawla Gaurav (2005)33 pointed out that
performance and efficiency of commercial banks are key elements of the
efficiency and efficacy of countrys financial sector. CAMELS rating system is
used to evaluate the health and performance of commercial banks. Data
31

32

33

Prasad A. & Ghosh Saibal Competition in Indian Banking IMF Working Paper, WP/05/141,
July, 2005.
Patnaik U C & Patnaik Manoj, Profitability in Public Sector Banks, Sonali Publications, New
Delhi, 2005.
Chakrabarti Rajesh & Chawla Gaurav, Money and Finance-Banking Efficiency in India since the
Reforms- An Assessment, Money and Finance, Vol. 2, Issue, 22-23, 2005.

c 46 C

Envelopment Analysis is used to measure efficiency. The most significant

change that occurred in the banking sector is the emergence of new private
sector banks as well as the entry of new foreign banks. Professionalism has
increased in the banking sector due to emergence of new private banks.
Public sector banks continue to enjoy pre-eminent position in Indian banking
sector accounting for over 80% of deposits and credit. There is however a
noticeable trend of private banks gradually eroding the market share of the
public sector. The foreign banks turnover per employee is about five times
that of the nationalised banks.
Mohan Rakesh (2005)34 explored the impact of banking sector
productivity on the rest of the economy. Productivity and efficiency issues in
banking are discussed in conjunction with the level of financial development
and other country-specific features. The patterns of efficiency and
technological changes witnessed in Indian banking can be viewed as
consistent with rapid changes in banking industry which is outcome of forces
of deregulation. The evidence of competitive pressure is well supported from
the declining trend of Herfindahls concentration index. Declining index
generally indicate a loss of pricing power and increase in competition. It is
concluded that as deregulation gathers momentum, commercial banks would
need to devise ways of augmenting their incomes and more importantly their
fee based incomes so as to raise efficiency and productivity levels.
Sahu Bihari Gagan & Rajasekhar D (2005-06) 35 in paper analysed
the trends in credit flow to agriculture by SCBs. Time period for the study
taken is from 1981 to 2000. The analysis brings out that the share of credit to
agriculture in total net bank credit had significantly declined especially, after
the introduction of banking sector reforms. The analysis also shows that SCBs
provided larger quantum of funds to activities earning higher interest income.
Credit flow to agriculture was negatively associated with investment in
government securities. Credit supply to agriculture was positively associated
with the incidence of rural bank branches. Increasing lending rate reduces

34

35

Mohan Rakesh Address delivered at the 21st Annual General Meeting and conference of the
Pakistan Society of Development Economists at Islambad in December, 2005.
Sahu Bihari Gagan & Rajasekhar D, Banking Sector Reform and Credit Flow to Indian
Agriculture, Economic & Political Weekly, Vol. XL, No. 53, Dec-Jan, 2005-06, pages. 5550-5559

c 47 C

the credit disbursed to agriculture by SCBs. It is suggested that cost of

lending should be reduced in order to reduce the burden of credit subsidy.
Kumar Parmod (2006) 36 in his book attempts to explore the broad
structure of banking system in India, to analyze the overall efficiency of the
system in terms of various financial parameters, to delineate and analyze the
overall efficiency into its components: technical efficiency and allocation
efficiency. In general the time period covered is 1969-70 to 2002-03 but the
efficiency analysis has been limited to the reforms period only. The analysis
has been carried out at the banks group level. Overall efficiency has been
analyzed first by using a stochastic-coefficients frontier production-function
approach. Data Envelopment technique is utilised to analyse components of
overall efficiency. In terms of overall economic efficiency, the public sector
banks are still better performers than the private banks and are slightly lower
than the foreign banks. The overall average allocative efficiency of the foreign
banks is the highest.
Samanta Amitava (2006)37 in his paper attempts to analyse the impact
of NPA on the working of Commercial Banks in India. It is held that India has
acquired an alarming number of Non-Performing assets over the last two
decades. NPA has affected the profitability, liquidity and competitive
functioning of public and private sector banks. Now-days the psychology of
the banks is to insulate themselves with zero percent risk and paying little
attention to fresh credit. Greater emphasis has been laid on credit risk
management.
Bhasin Niti (2006) 38 in her work explains and examines the changes
which have taken place in the Indian banking sector over the last 60 years
since Independence. She highlighted that the banking system of India
consists of the Central bank (Reserve Bank of India), Commercial banks, Cooperatives banks and developmental banks. These institutions act as
intermediary between savers and investors. Banks play an important role in
the
36

37

38

development

process

of

underdeveloped

countries.

Banking

Kumar Parmod, Banking Sector Efficiency in Globalised Economy, Deep and Deep
Publications, New Delhi, 2006.
Samanta Amitava, Impact of NPA on Working of Commercial Banks in India, Journal of
Economic and Social Development, Vol.11, No.1, 2006, pages 87-95.
Bhasin Niti, Banking Developments in India 1947 to 2007 Growth, Reforms and Outlook, New
Century Publications, New Delhi. 2006.

c 48 C

developments in India are largely due to various actions taken by government.

The book describes the role of banking system in a developing country like
India. It also explains about the changing functions of banks to meet
challenges of changing world economic order.
Sensaram Rudra (2006) 39 estimated efficiency of Indian banks and
then estimated a measure of productivity that includes an efficiency term.
Following this comprehensive measure, we find that banks have improved
their performance during the period 1986 to 2000 in terms of both efficiency
and productivity. Foreign banks have been the worst performers throughout
the period as compared with state owned and private domestic banks.
Varadi, Kumar Vijay, Kumar Pradeep & Boppana Nagarjuna
(2006)40 The present study focuses on estimation of the efficiency of
commercial banks including public, private and foreign banks operating in
India with four indicators i.e. productivity, profitability, financial management
and asset quality. Data Envelopment Analysis is used for measuring the
efficiency of banks in India. The study covers 93 banks. Time series data from
2000 to 2003 is used for the study. Intermediation Approach is used. It is
concluded that public sector banks are having higher efficiency in terms of
productivity, profitability, financial management and asset quality. Private
Banks are having a very high inefficiency levels during the sample period in
the different indicators. Foreign banks are more efficient than the private
banks. The public sector banks profitability has improved and their NPAs have
declined massively. Public sector banks are having more high possibility to
fulfil corporate and social responsibilities.
Sharma Neeraj (2006)41 in present study is a case study concerned
with the performance measurement of PNB in Haryana state and seeks to find
out its contribution in the economic development of the state. The purpose is
to find out that whether PNB is truly a lead bank of the state. Comparison of
PNB is done with public sector banks and all banks (Public, Private, RRBs)
operating in Haryana. In present study, five variables have been taken to
39

40

41

Sensaram Rudra, Are foreign banks always the best? Comparison of state-owned, private and
foreign banks in India, Economic Modelling, Vol. 23, Issue. 4, July 2006, pages. 717-735.
Varadi, Kumar Vijay, Kumar Pradeep & Boppana Nagarjuna, Measurement of Efficiency of
Banks in India, MRPA Paper No. 17350, posted 17, September 2009, Online at http:// mpra.ub.unimuenchen.de/17350 , 2006.
Sharma Neeraj Performance of Punjab National Bank in Competitive Environment: A Case Study
of Haryana, Ph.D Thesis, Punjabi University, Patiala, 2006.

c 49 C

evaluate the overall performance of PNB in Haryana state for the period 19932004. These variables are: Branches, Deposits, Advances, Priority Sector
Advances, C-D ratio. Arithmetic Mean, Standard deviation, Coefficient of
variation, Correlation coefficient, simple and trend growth rate are used for
analysing the data. It is suggested that multi pronged approach should be
adopted by the banks to raise capital from domestic as well as foreign
markets. Research efforts should be so directed so that these are meant for
understanding the need based problems faced by the people living in rural
and urban areas.
Rao Ramachandra, Das Abhiman, Singh Kumar Arvind (2006)42 in
paper examines the trends in sectoral allocation of bank credit to the SSI in
comparison to non-SSI sector in the post reform period. The paper also
makes an attempt to understand variations in bank credit to the SSI sector
across bank groups and also the influence of the size and performance of
banks on credit to the SSI sector. The study covers 97 Scheduled commercial
banks. These banks are also classified into three size classes based on the
total assets as on March 31, 2003. Time period of the study is from 1992 to
2003. It is believed that the working capital support extended by commercial
banks to small-scale industry is far from adequate. Share of SSI in total
priority sector advances of all scheduled commercial banks has been falling
consistently. The results indicate that the high incidence of bad loans arising
out of SSI advances could be one of the reasons for the declining share of
SSI loans of the commercial banks.
Mittal R.K & Dhingra Sanjay (2007)43 in paper evaluates the impact
of computerisation on the performance of Indian banks in terms of their
profitability and productivity. Data Envelopment analysis is used to study the
impact of computerisation on Indian banks productivity and profitability.
Results show that ICICI Bank is found to be efficient in all indicators. Only two
public sector banks, Oriental Bank of Commerce and Corporation Bank were
in top ten. The output of DEA indicates that private banks are much better
than public banks in productivity and profitability indicators.
42

43

Rao Ramachandra KS, Das Abhiman, Singh Arvind Kumar, Commercial Bank Lending to SmallScale Industry, Economic & Political Weekly, Vol. XLI, No. 11 March 2006, pages. 1025-1033.
Mittal R K & Dhingra Sanjay Assessing the impact of computerization on productivity and
profitability of Indian banks- An Application of Data Envelopment Analysis, Delhi Business
Review, Vol. 8, No. 1, January- June, 2007.

c 50 C

Mittal Manish & Dhade Aruna (2007) 44 in paper compares various

categories of banks in terms of their productivity and profitability. This paper
focuses on the achievement and performance of Public Sector Banks vis-a-vis
Private sector banks and Foreign Banks. The time period for the performance
analysis has been chosen as 1999-2000 to 2003-2004. The study uses Ratio
analysis to compare profitability and productivity of different categories of
banks. It is concluded that public sector banks and old private sector banks
are lagging far behind their competitors in terms of both productivity and
profitability with the exception of State Bank of India and its associates. A
three point program is suggested for public sector banks and old private
sector banks. They should reduce overstaffing, forge strategic alliance with
the rural regional banks to open up rural branches and increased use of
technology for improved products and services for the same.
Sufian Fadzlan (2007)45 provides new empirical evidence on the
performance of the Malaysian Islamic banks over the period of 2001-2004 by
applying the Malmquist Total Factor Productivity Index. For the empirical
analysis all Malaysian conventional banks that offered Islamic banking were
incorporated in the study. A variation of intermediation approach or asset
approach is adopted. Results hold that the domestic banks have exhibited
higher

productivity

growth

compared

to

their

foreign

counterparts.

Technological change is mainly responsible for productivity progress of

Malaysian Islamic banks.
Singh Sultan (2007) 46 made an attempt to assess the impact of
reforms on the operational performance and efficiency of the commercial
banks in India. Ratio Analysis has been used as a major tool for assessing the
performance of the selected commercial banks. The hypothesis that the
profitability position has improved in reform period may be accepted to some
extent. It was observed that in the PSBs the size of NPAs has also been
reduced to some extent and quality of service has improved in reform period.
The priority sector lending has registered a decline in the deregulation era.
44

45

46

Mittal Manish & Dhade Aruna Profitability and Productivity in Indian Banks: A comparative
Study, AIMS International, Vol. 1, No. 2, May 2007, pages. 137-152.
Sufian Fadzlan Productivity Growth in the Malaysian Islamic Banking Industry: A NonParameteric Malmquist Productivity Index Approach, The ICFAI Journal of Industrial
Economics, Vol. IV, No. 1, 2007, pages. 20-36.
Singh Sultan Banking Sector Reforms in India, Kanishka Publishers, New Delhi, 2007.

c 51 C

Rangarajan C (2007) 47 in lecture focuses on the banking sector

reforms and improvement in the performance of Indian banking Industry. It is
held that the development of the financial system is essential for sustaining
higher economic growth. Reform measures were initiated in India so that
banks can overcome external constraints and operate with greater flexibility.
Favourable impact of banking sector reforms on Indian banking Industry is
also shown. Proper attention should be paid to issues like consolidation,
capital adequacy, risk management and customer service. Productivity and
Profitability can be improved by combining corporate planning with
organisational restructuring. Financial inclusion and governance have
emerged as the key issues for socio-economic development.
Gopinath Shyamala (2007) 48 in her speech focused on impact of
financial sector reforms especially on banks. It improved the efficiency,
soundness and ensured financial stability of the entire system. Financial
sector reforms in India were introduced in India in the early 1990s. They were
part of the structural adjustment and economic reforms programme and had
profound impact on the functioning of the financial institutions especially
banks. The reforms were introduced neither because of any banking crisis nor
due to any external support package. To prepare financial system to compete
in globalized environment and to promote financial stability was on top of
agenda of reforms.
Monterio Mohan N J & Ananthan B R (2007)49 studied the two highly
banked districts of Karnataka state namely, Dakshina Kannada and Udupi.
Corporation Bank Ltd was selected as respondent bank as it has more
number of branches and has covered wider area in the districts. A total of 35
managers of the respondent bank were chosen to gather the data relevant for
the study. A comprehensive questionnaire covering structured and nonstructured questions was administered to the bank managers and personal
interview was held to gather additional data. The issues covered in the
questionnaire included the possible causes for NPAs, options available when
47

48

49

Rangarajan C The Indian Banking System Challenges Ahead, Indian Institute of Banking and
Finance, First R. K. Talwar Memorial Lecture, July 31, 2007.
Gopinath Shyamala Special Features of Financial Sector Reforms in India, Inaugral address by
Smt Shyamala Gopinath, Deputy Governor, RBI delivered at the 18th Annual National Conference
for Forex Association on April 6, 2007 at Bangkok.
Monterio Mohan N.J & Ananthan B R, NPA in Public Sector Banks: Causes and Cures, The
Indian Journal of Commerce, Vol. 60, No. 2, April-June 2007, pages. 1- 11.

c 52 C

loans turn sticky, possible steps to reduce and control NPAs etc. It is found
that irregular payment was the major cause for an account turning into NPA.
Good pre-sanction scrutiny, effective post-sanction supervision and effective
recovery steps were the measures to control NPAs.
Uppal R K & Kaur Rimpi (2007) 50 in paper describes the necessity of
the banking sector reforms from the angle of national development policy. It
analyzes the impact of reforms on the performance of the banking sector. The
study reveals that the gap in the productivity and profitability of major bank
groups has widened. Performance of banking sector has improved under
reform period but still public sector banks are lagging behind in their
performance when compared with counterparts. The paper concludes how
banking industry can improve its performance and suggests future agenda for
the banking industry particularly to the public sector banks. A strategic action
plan should be initiated for reducing NPAs. Indian banking sector should
develop its own model based on local ethos and cultural backdrop. Public
sector banks should adopt the same strategies as that of private sector and
foreign banks to gain competitive edge.
Kumar Vishal & Savita (2007)51 in present paper attempts to identify
the challenges in Indian banking sector and also suggested strategies for
future. Some of the major challenges faced by the Indian banking industry are
improvement in profitability, technology upgradation, building proper risk
management structure, rural and social banking issues and proper human
resource management. It is concluded that due to changing economic
scenario world wide banks will have to take steps for cost reduction,
technology up-gradation, innovation in services and products, seeking newer
markets and reorientation in attitudes towards the constantly changing
environment.

50

51

Uppal RK & Kaur Rimpi, Banking Sector Reforms: Their Efficacy and Future Agenda in R K
Uppal & Rimpi Kaur (ed.) Banking in the New Millennium: Issues, Challenges and Strategies,
Mahamaya Publishing House, New Delhi, 2007, pages. 1-21.
Kumar Vishal & Savita, Banking in the New Millennium: Challenges and Strategies, in R K
Uppal & Rimpi Kaur (ed.) Banking in the New Millennium:Issues, Challenges and Strategies,
Mahamaya Publishing House, New Delhi,2007, pages. 155-172.

c 53 C

Kapoor Seema (2007) 52 This paper attempts to discuss the process of

banking reforms and examines its impact on the performance of Scheduled
commercial banks in general and Public sector banks in particular during post
reform period. The parameters used in the study to evaluate the performance
of Indian banks are capital adequacy and asset quality, efficiency, profitability
and business of banks in rural areas. It is concluded that Indian banking
system is well in co-ordination with International standards. Deregulation,
technological upgradation, increased market integration and human resource
management are the key factors which stimulated change in the financial
sector.
Dey S K & Kumar Pradeep (2007) 53 in article highlights the fact that
development is both economic and social phenomenon. Social lending
became one of the thrust areas under the poverty alleviation programme in
the country. It is suggested that direct subsidy component in social lending
should be scrapped. Social lending should result in mutual benefits. It should
be properly designed and monitored from time to time. Self Help groups
should be encouraged for social lending. It is concluded that profitability and
social lending of banks should go hand in hand. Profitable banks can do
social lending more aggressively for a long time.
Uppal R K (2008) 54 in his book focuses on issues like Basel- II Accord
guidelines, second generation banking sector reforms, cost-benefit and
productivity analysis of Indian banks, danger zone banks, privatisation and
comparative efficiency of Indian banks and the recent reform measures. He
emphasised that banking sector reforms in India enabled Indian banking
industry to face competitive pressures. Banking sector have stimulated the
Indian economy to move towards higher growth path. It is indicated that Indian
banking system today is more stable and efficient. It is suggested that there is
a need to ensure long-term finance to support development and growth in the
economy.
52

53

54

Kapoor Seema, Reforms in Indian Banking Sector: Agenda for Future in R K Uppal & Rimpi
Kaur (ed.) Banking in the New Millennium: Issues, Challenges and Strategies, Mahamaya
Publishing House, New Delhi, 2007, pages. 379-394.
Dey SK & Kumar Pradeep, Relevance of Social Lending in Indian Banking in Mohan Prasad
Shrivastava, Pradeep Kumar Pandey, V P Vidyarthi (ed.) Banking Reforms and Globalisation,
APH Publishing Corporation, New Delhi, 2007, pages. 297-304.
Uppal R K Indian Banking in the Globalised World, New Century Publications, New Delhi,
2008.

c 54 C

Kalluru Siva Reddy & K Bhat Sham (2008)55 explored the

determinants of banks profitability during the post reform period. The fixed
effects model as well as the random effects has been employed to identify the
determinants of profitability of commercial banks in India. The study was
conducted on 87 commercial banks which consist of 28 public sector banks.
Return on Assets and Returns on Capital are considered as alternative
measure of profitability. Empirical results revealed that efficiency is not the
sole determinant of profitability as other internal variables such as capital to
assets, non-interest income to assets, loans to assets and overhead
expenses to assets are statistically significant. Size is negatively associated
with the profitability of public sector banks in ROA and positively associated
with private banks in ROC specification. Ownership and political party in
power also play a vital role in determining bank profitability in India. Inflation
and profitability is negatively associated with the profitability of Indian banks.
Determinants of bank profitability vary significantly across the bank groups.
Gupta Sumeet & Verma Renu (2008) 56 analyses the overall financial
performance of major private sector banks in India through application of
CAMEL Model. Ten major private sector banks has been taken- Axis Bank,
Bank of Rajasthan, City Union Bank, HDFC Bank, ICICI Bank, Kotak
Mahindra Bank, Karnataka Bank, Karur Vysya Bank, South Indian Bank, Yes
Bank. The ranking of these banks has been done by calculating the average
of different financial ratios of 5 years from 2003 to 2007 at the rating scale of
1-10. For comparative analysis of overall performance, Composite Ranking
method has been applied on the basis of group performance. Analysis shows
that Karur Vysya Bank has the top position in overall performance followed by
City Union Bank and Kotak Mahindra Bank, Bank of Rajasthan has got the
lowest Composite Rank among all the banks under study. It can be concluded
that transparency and good governance would work as principal guiding force
in present scenario.

55

56

Kalluru Siva Reddy & K Bhat Sham An Empirical Analysis of Profitability Determinants in
Indian Commercial Banks during Post Reform Period, The ICFAI University Journal of Industrial
Economics, Vol. V, No. 4, 2008.
Gupta Sumeet & Verma Renu Comparative Analysis of Financial Performance of Private Sector
Banks in India: Application of CAMEL Model, Journal of Global Economy, Vol. 4, No. 2, AprilJune, 2008, pages 144-158.

c 55 C

Rao D Suryachandra (2008) 57 The major objective of the study is to

assess the impact of reform measures on the efficiency, profitability and
overall performance of banks taking public and private sector bank during the
period 1992-93. Six efficiency indicators and five profitability indicators are
taken to evaluate the performance of banks. The performance analysis is
carried out in two ways that is time-wise analysis and period-wise analysis.
The reform measures have a positive impact on profitability, efficiency and
overall performance of all groups of banks. The financial health of banks
improved due to prudential norms. New private sector banks have showed
better performance than old private sector banks and public sector banks.
Kumar Sunil (2008) 58 explored the relationship between Technical
efficiency in the Indian public sector banks. The study is based on crosssectional data for 27 banks. The technique of Data envelopment analysis has
been utilised to compute the technical efficiency score for each bank in the
year 2005. The mean level of technical efficiency for the industry is found to
be 88.5 percent. This implies that public sector banks can produce 1.13 times
as much output from the same inputs, if they operate at efficiency frontier in
20 inefficient banks. This paper explains the performance variance and
relative efficiencies of 19 public sector banks excluding State Bank group
operating in India during 2003-2008.
Bodla B S & Verma Richa (2008-09) 59 attempted to view the Earning
Quality of Indian banks as per CAMEL Model. This paper highlights the
earning quality in terms of operating profit and net profit, fund based and fee
based income of the banks. Earning Quality determines the profitability of the
banks. The study covers 88 scheduled commercial banks for the time period
1991-92 to 2005-06. The study period was further divided into three subperiods 1992-95, 1996-00 and 2001-06. T-test was applied to examine the
significance of difference in various parameters between various sub-periods
and across various sectors. It is concluded that on the whole the banks
operating in India have shown appreciable improvement in their fee-based
57

58

59

Rao D Suryachandra, Banking Reforms in India: An Evaluative Study of the Performance of

Commercial Banks, Regal Publications, New Delhi, 2008.
Kumar Sunil, An Analysis of Efficiency-Profitability Relationship in Indian Public Sector
Banks, Global Business Review, Vol. 9, No. 1, 2008, pages. 115-129.
Bodla B S & Verma Richa Earning Quality of Scheduled Commercial Banks in India: Bank-wise
and Sector-wise Analysis, Prajnan, Vol. XXXVII, No. 4, 2008-09, pages 257-283.

c 56 C

income. Banks of foreign origin are ranked on the top on the basis of their
earning quality. Profitability of Scheduled Commercial banks is growing
continuously due to increasing fee-based income and curtailment of operating
expense.
Raju. D N M (2009) 60 The objectives of the study are to appraise the
performance of the bank in regulating NPAs and identification of the problems
faced by the bank and suggests remedial measures to overcome
inefficiencies, shortcomings and bring down NPAs. The study covered SBI
branches operating in Vijayawada zone covering three districts of Coastal
Andhra Pradesh. The financial and operating performance of the SBI was
examined with reference to deposit mobilisation, deployment of credit and
profits. The period covered for the study is 1990-91 to 2000-01. Two
structured questionnaires were administered a) on select employees of SBI
dealing with NPAs and few other senior officers b) on bank officers dealing
with advances. Statistical tools used in the study are percentage, mean, ratio
analysis, correlation, regression and chi-square. The study brings out a
number of suggestions for improving the performance of SBI, strengthening
the recovery position of NPAs, prevention and reduction of NPAs.
Kalluru Siva Reddy & Sham Bhat K (2009) 61 in paper investigates the
effects of foreign banks entry on the operations of public sector banks in India
for the period 1996-2007. Variables employed to mark the intensity of foreign
banks presence that ratio of number of foreign banks to the total number of
banks in the country. Net interest margin to total assets, Non-interest income
to total assets, profits before tax to total assets, overhead expenses to total
assets, non-performing loans to total loans are the variables which measure
the income, profitability and costs of public sector banks. The empirical results
reveal that foreign bank entry usually increases competition in the banking
industry as is evidenced by increasing profitability of banks. It is concluded
that foreign bank entry in the Indian banking system adversely affects the
operations of PSBs.
60

61

Raju D N M Evaluation of the Performance of State Bank of India with special reference to NonPerforming Assets (NPAs), Abstract of Doctoral Dissertation, Finance India, Indian Institute of
Finance, Vol. XXIII, No. 3, September, 2009, pages. 985-989.
Kalluru Siva Reddy & Sham Bhat K Does Foreign Bank Entry Affect Operations of Domestic
Banks ? A Study of Indian Public Sector Banks, The ICFAI University Journal of Managerial
Economics, Vol. VII, Nos. 3 & 4, August & November, 2009.

c 57 C

Dhade Aruna (2009) 62 in doctoral dissertation has focused on the

yearly performance of State Bank of India to find out the extent to which State
Bank of India is affected due to entry of new private sector banks. The study
covered the area of Madhya Pradesh State. The time period is selected from
1994-95 to 2004-05. Various statistical tools such as measure of central
tendency, standard deviation, hypothesis testing and T test is also used. The
influences of the New Private Banks have been assessed by applying t-test
for finding the significant difference in the pre and post performance of the
business of State Bank of India. Financial ratios are also used for finding the
changes in the business of State Bank of India after the entry of New Private
Sector Banks. The study concluded that no impact was found on the overall
business of State Bank of India. It is suggested that State Bank of India must
equip itself to face the rising competition of New Private Sector Banks within
Madhya Pradesh state.
Pal Ved, Bishnoi N. K. (2009)63 in paper seeks to explain the
productivity growth of the Indian banking sector using panel data of 63
commercial banks from 1996-2005. The study intends to analyze the
productivity of commercial banks by measuring the total productivity growth
and its components. The study is based on the secondary data published by
the Reserve Bank of India. The study used Data Envelopment Analysis to
calculate and decompose the Malmquist index of total factor productivity
growth into technical change, change in technical efficiency and change in
scale efficiency. For the purpose of productivity measurement three important
approaches are used that Asset approach, Value addition approach and
income approach. As per the Malmquist productivity indices, Indian
commercial banks on average have shown improvement in productivity during
the post-liberalization period. The public sector banks have attained the
highest growth in the overall productivity and its components under the asset
and income approaches. The nationalized banks had attained second highest
growth in this approach and also registered improvement in all the
components of total productivity.
62

63

Dhade Aruna, Impact of New Private Sector Banks on State Bank of India Special reference to
Madhya Pradesh State Abstract of Doctoral Dissertation, Finance India, Indian Institute of
Finance, Vol. XXIII No. 4, December 2009, pages. 1357-1363.
Pal Ved, Bishnoi N.K, Productivity Analysis of Commercial Banks in India, Decision, Indian
Institute of Management, Calcutta, Vol. 36, No. 1, April 2009, pages 131-157.

c 58 C

Gulati Rachita & Kumar Sunil (2009) 64 explores the relationship

between efficiency and profitability in 51 Indian domestic banks operating in
the financial year 2006-2007. Efficiency-profitability relationship is explored at
the level of individual banks. For this purpose, efficiency-profitability matrix is
constructed. Data Envelopment Analysis has been used to obtain efficiency
score for individual banks. The study utilized CCR model to reduce the
multiple-input, multiple- output situation for each DMU to a scalar measure of
technical efficiency. The results obtained using CCR model distinguishes the
DMUs as: efficient and inefficient. The empirical results show that out of 51
sample banks only 9 banks have been found to be technically efficient. The
efficiency-profitability matrix reveals that the resource utilization processes in
22 banks that fall in the first and last quadrant are not functioning well.
Further, Tamilnad Mercantile Bank and Yes Bank may be considered as an
ideal benchmark for the poor performing banks on the efficiency and
profitability dimensions of performance evaluation.
Rao Nageshwar & Tiwari Shefali (2009)65 attempted to identify
efficiency factors affecting the banks individually as well as industry. Out of
the scheduled commercial banks, a sample of fifteen banks is selected. The
data is collected for a period of five years (2001-2005). The variables
considered for the study are taken as independent and dependent variables.
The independent variables are deposits, assets and advances. Dependent
variables are classified into three categories such as efficiency factors related
to per branch, efficiency factors related to operations, efficiency factors
influencing ultimate profits. Product moment correlation was used for data
processing. It is concluded that efficiency factors related to per branch and
efficiency factors related to operations play a significant role in influencing the
overall efficiency of public sector banks. Only one factor i.e. efficiency factors
influencing ultimate profits is significantly correlated to efficiency of private
sector banks. In case of foreign banks efficiency factors influencing ultimate
profits is significantly correlated to efficiency for foreign sector banks. General
suggestion given is that if operating expenses are reduced the per branch
64

65

Gulati Rachita & Kumar Sunil, Efficiency-Profitability Relationship in Indian Domestic Banks: A
Disaggregate Analysis, Asian Economic Review, Journal of the Indian Institute of Economics,
Vol. 51, No. 3, December 2009, pages 411-433.
Rao Nageshwar & Tiwari Shefali Efficiency Indicators of Commercial Banks in Liberalised
Environment in India, Abhigyan, Vol. XXVII, No. 1, 2009, pages 10-19.

c 59 C

efficiency and operational efficiency of public sector banks will automatically

increase which in turn will increase their overall efficiency.
Verma Amitabh (2009) 66 evaluated the impact of technology on the
performance of Indian banks in terms of their profitability and productivity. IT
has become buzzword in Indian banking industry. Technology can be the key
differentiator between two banks and major factor to attain competitive edge.
The primary challenge for banks is to provide consistent service to customers
irrespective of the kind of channel they use. It is concluded that Indian Public
sector banks have a unique advantage over their counterparts in terms of
their branch network and the large customer base but it is the use of
technology that will enable Public Sector Banks to build on their strengths.
Shanker Daya, Wadud IKM Mokhterul & Singh Harminder (2009) 67
compares the operative performances of banking sectors of India and China
taking into account the institutional aspects of their development. Efficiency of
the banks is assessed using non-parameteric technique between the time
period 2002 and 2005. Sample consists of 13 Chinese banks and 19 Indian
banks. The results suggest that restructured Chinese banks recorded a
continuing decline in their efficiencies over the study period. On the other
hand, two Indian banks, State Bank of India and ICICI were consistently
considered as efficient banks. It is also suggested that loans which are not
returned are considered as subsidy to export-oriented industries in China.
Transparency forms the integral part of the level playing field.
Tandon Deepak, Ahuja Kanhaiya & Tandon Neelam (2009) 68
attempted to analyse technical efficiency of PSBs operating in India by
applying the DEA model. Relative efficiency is calculated with respect to the
most technical efficient bank in terms of minimum output and maximum
output. The performance of most efficient PSB is considered as a benchmark.
On the basis of analysis it was concluded that the best bank with consistency
in performance is Corporation Bank. Least efficient bank in terms of interest

66

67

68

Verma Amitabh, The impact of Technology on Productivity and Profitability of Indian Banks in
Post Liberalised Period, Abhigyan, Vol. XXVII, No. 2, 2009.
Shanker Daya, Wadud IKM Mokhtarul, Singh Harminder, A Comparative Study of Banking in
China and India- Non-Performing Loans and the Level Playing Field, The Indian Economic
Journal, Vol. 57(3), October-December, 2009, pages. 118-138.
Tandon Deepak, Ahuja Kanahaiya &Tandon Neelam, Relative Performance of Banks- A Study,
The Indian Banker, Vol. IV, No. 7, July 2009.

c 60 C

expenses and operating expenses as inputs and business as output is Punjab

and Sind Bank.
Varshney Chanchal (2009) 69 examines the role of institutional finance
in the development of the priority sectors of India. It also examines the role of
State Bank of India in lending to Agriculture, Small Scale Industries and other
priority sector. The study is based on secondary data. The detailed data is
collected from lead bank (Canara Bank) Aligarh on population group wise
number of bank offices, deposit mobilisation and deployment of credit by
State Bank of India in Aligarh from the year 1991 to 2001. Questionnaire was
also prepared and personal discussions were also conducted with bank
officials concerned with priority sector lending. Major finding of the study were
that priority sector lending worsened during the last decade from 1991-2001
due to declining in the C/D ratio. Declining of priority sector lending is due to
increasing ratio of NPAs. Disconnectivity among employment, education,
health care and transport was found. To overcome the problems it is
suggested that quantum of loan amount should be increased and rate of
interest on loan should be reduced. Priority sector lendings should be linked
to net bank deposit rather than net bank credit.
Kumar Sunil & Gulati Rachita (2009)70 in paper examines the interbank differentials in income generating efficiency. The study covers 28 Public
Sector Banks operating in India during the financial year 2006-2007. The
technique of Data Envelopment Analysis has been used to compute the
efficiency scores for individual Public Sector Banks. The empirical findings
reveal that Public Sector Banks are generating net-interest and non-interest
incomes with high level of efficiency which is reflected by the mean efficiency
score of 0.918. The study suggests that for improving their performance, the
inefficient Public Sector Banks should concentrate more on generating noninterest income from the off-balance sheet activities rather than interest
income from the traditional activities like advancing loans and investments in
other earning assets.
69

70

Varshney Chanchal , Role of State Bank of India in Financing the Priority Sector: Case Study of
Aligarh District Abstract of Doctoral Dissertation, Finance India, Indian Institute of Finance, Vol.
XXIII, No. 2, June 2009, pages. 634-636.
Kumar Sunil & Gulati Rachita, Income-Generating Efficiency of Public Sector Banks in India: An
Application of Data Envelopment Analysis, ArthVijnana, Vol. 11, No. 2, June 2009, pages. 103126.

c 61 C

Singh Ram Pratap & Chatterjee Biswajit (2009-10) 71 seeks to

compare the performance of 40 Indian commercial banks regarding deposit
mobilization in the reform period. The paper made use of a non-parametric
approach that is Data Envelopment Analysis (DEA). It uses the Window
Analysis developed by Klopp. Time span used for the present study is five
years that is 2001-02 to 2005-06. One important objective of the study has
been to see whether bank ownership mattered in respect of deposit
mobilization. The result suggests that the public sector banks have fallen
behind the in-sample private sector commercial banks in terms of deposit
mobilization.
Uwafio Jeremaiah, Idialu & Yomere O Gabriel (2010) 72 focused on
the quantitative analysis of financial performance of Nigerian Banks. The
study employed the stochastic cost frontier approach to generate Xefficiencies for each bank over the time period 2000-2004. The specific issue
examined in this study is cost efficiency. For the purpose of the study, the
banks are classed into two groups, the 10 dominant banks and the rest banks.
A variation of the intermediation approach is used with total costs as
dependent variable and the independent variables includes total customer
loans, other earning assets, staff expenses/average number of personnel,
interest expenses/total customer deposits, other non-interest expenses/total
fixed assets and other fixed assets, total shareholders funds, Non-Performing
loans/total loans. The study has revealed that there is inefficiency in the
Nigerian banking system and that the level of inefficiency ranges between 0
and 19 percent of total cost. The study proved that there is inefficiency in the
Nigerian banking system.
Kodian Narander, Kumar Shalinder & Kodan Anand Singh (2010) 73
in article analyzed the trends of growth of banking Industry in India. The study
has highlighted the trends relating to infrastructure development, expansion of
total credits and deposits, expansion of rural credit by Scheduled Commercial
Banks,
71

72

73

investment

in

government

securities,

non-performing

assets.

Sinha Ram Pratap & Chatterjee Biswajit, Bank ownership and Deposit Mobilization: A NonParameteric Approach, Prajnan, Vol. XXXVIII, No. 3, 2009-10.
Uwafio Jeremaiah, Idialu &Yomere O Gabriel, Stochastic Frontier Analysis of the Efficiency of
Nigerian Banks, Indian Journal of Economics and Business, Vol. 9, No. 1, 2010, pages. 75-86,
Serial Publications, New Delhi.
Kodian Narander, Kumar Shalinder & Kodan Anand Singh, Scheduled Commercial Banks:
Growth Trends, Yojana, Vol. 54, No. 2, February, 2010, pages. 47-50.

c 62 C

Comparison of Indian banking Industry with that of Chinese banking Industry

with respect to Return on Assets, Return on Equity, Non-Performing loan to
Total Loan, Capital Adequacies. It is concluded that decline in percentage
share of rural credit is a matter of concern.
Moffat Boitumelo & Narayana N (2010) 74 examines the performance
of major financial institutions in Botswana using data envelopment analysis.
This paper specifically examines the relative efficiency of financial institutions
in a developing country like Botswana through time and using various inputoutput classification criteria. Time period covered for the study is 2001-2006.
In order to make detailed analysis of inefficient units and take corrective
actions to improve their performance, this paper considers both the CRS
assumption and the VRS assumption in estimating the efficiency indices. The
robustness and sensitivity of estimated efficiency scores is examined by using
value added, intermediation and operating approaches. The empirical results
indicate the Bank of Baroda and First National Bank and Botswana savings
bank are consistently among the most efficient institutions. Botswana
Development

Corporation,

African

Bank

Corporation

and

National

Development Bank are the least efficient ones. It is held that financial
institutions in Botswana should utilise their resources more efficiently to
further improve their efficiency so that they can compete with rest of the world.
Sen Mitali (2010)75 in her empirical work makes an exploratory attempt
to study the liability structure of Indian Commercial Banks. The sample of 82
Indian Commercial Banks is drawn for which consistent data is available over
the period 1995-96 to 2003-04. The major findings of the study are that set of
six critical factors that is profitability, size, liquidity, risk and asset quality, fee
based earnings and efficiency influence the liability structure of commercial
banks. From empirical analysis it can be inferred that banks should
concentrate more on fee based activities.

74

75

Moffat Boitumelo & Narayana N, The Performance of Financial Institutions in Botswana: A

Study of Selected Banking and Non-Banking Financial Institutions, Asian-African Journal of
Economics and Econometrics, Vol. 10, No. 1, 2010.
Sen Mitali Liability Structure of Indian Commercial Banks, Northern Book Centre, New Delhi,
2010.

c 63 C

Kumar Sunil & Gulati Rachita (2010) 76 appraised the efficiency,

effectiveness and performance of 27 public sector banks operating in India by
using a two-stage performance evaluation model. Using the cross-sectional
data for the financial year 2006/2007, the technique of data envelopment
analysis has been used for computing the efficiency and effectiveness scores
for individual PSBs. The empirical results reveal that high efficiency does not
stand for high effectiveness in the Indian PSB industry. A positive and strong
correlation between effectiveness and performance measures has been
noted. Further, on the efficiency front, State Bank of Travancore appears as
an ideal benchmark, while State Bank of Bikaner and Jaipur and State Bank
of Mysore emerge as ideal benchmark on the effectiveness front.
Kumar Sunil & Gulati Rachita (2010) 77 attempted to analyse the
performance of Public Sector Banks in the post-reform period by looking at
the trends of cost efficiency and convergence in its level across banks. The
time period for the study is from 1992-93 to 2007-08. This paper made use of
Data Envelopment Analysis to estimate empirically the cost, technical and
allocative efficiency scores for individual public sector banks. Empirical results
show that deregulation had a positive impact on the cost efficiency levels of
Indian Public Sector Banks. Cost efficiency in majority of banks that belong to
SBI group followed a declining trend and the banks that belong to
Nationalised group experienced an increasing trend in cost efficiency levels. It
is concluded that the deregulation process has strengthened the cost
efficiency of the majority of PSBs. In the light of empirical findings the future
reforms in the banking sector should be directed towards strengthening
competitive and market oriented policies.
Khan MY (2010)78 in article has focused on the decision of the
government to permit the entry of new private banks in the country. RBI has
prepared a draft on the scheme for issuing banking licences to the private
sector. The experts hold the view that the new banks will promote competition
in the banking sector. It is held that policy has taken a U-turn from the policy
76

77

78

Kumar Sunil &Gulati Rachita, Measuring efficiency, effectiveness and performance of Indian
public sector banks, International Journal of Productivity and Performance Management, Vol.
59, Issue. 1, 2010, pages 51-74.
Kumar Sunil & Gulati Rachita, Dynamics of Cost Efficiency in Indian Public Sector Banks: A
Post-Deregulation Experience Paper submitted for presentation in the Twelfth Annual Conference
on Money and Finance in The Indian Economy 11th and 12th March, 2010.
Khan MY, A U-turn Banking The Economic Times, 1 October, 2010.

c 64 C

focus on consolidation of banks by merger. The purpose is not to oppose new

banks but to prevent return to the pre-1969 era of banking. It is suggested that
new banks have to adopt a human approach in the areas like urban slums
and rural sector so that the income gap may be reduced and asset generation
take place.
Ram Mohan TT (2010) 79 in article highlighted the fact that despite the
worst financial crisis of the century, Indian banking sector fared well. Indian
banks showed 1% ROA in both 2007-08 and 2008-09. Capital adequacy and
spread also improved. All these indicators place banking sector among most
profitable banks in the world today. ROA of 1% is a benchmark of good
performance in banking despite the ups and downs of the economy. This
shows that Indian banking is crisis proof. It is suggested that banks need
more sophisticated products and should meet the challenge of financial
inclusion.
Ram Mohan TT (2010) 80 This article highlights the proposition given by
President of America Obama that higher capital requirements are not
sufficient but the caps on the size of banks are also required. He hold the view
that banks size should be fixed in relation to the economies in which they
operate that 5-10% of GDP. Big or small banks are likely to fail despite steps
taken to make banks safe. The damage will be greater if the size of bank is
bigger. As a result there will be greater need for a government help.
Efficiencies of scale in banking are attained at a relatively low size.
Pande Bhanu (2010) 81 indicates that in the worst recession of global
banking industry, several big banks of the world collapsed but strong Indian
banks have improved their brand value rapidly. There are 20 Indian banks in
the Brand Finance Global Banking 500. It is annual international ranking by
UK-based Brand Finance. The State Bank of India (SBI) became the first
Indian bank to break into the worlds Top 50 list. The study used discounted
cash flow methodology to arrive at a net present value of trademark and
associated intellectual property that the brand value. SBIs brand value more
than tripled to $4,551 million up from $1,448 million in 2009 helping to grab
the 36th position in the list.
79
80
81

Ram Mohan TT, A Crisis Proof Banking Sector, The Economic Times, 7 January, 2010.
Ram Mohan TT, At last, the remaking of banks, The Economic Times, 4 February, 2010.
Pande Bhanu, State Brand of India The Economic Times, 1 February, 2010.

c 65 C

Although a lot of work has been carried out for the evaluation of
commercial banks efficiency in the world, but very little work has been carried
to evaluate the performance of public sector bank in India in general and
State Bank of India in particular. This study will try to find out the impact of
banks specific variables on the efficiency of SBI and its associates. So under
present scenario there is dire need to carry out a study to analyze the
performance of SBI and its associate banks to provide answer to all problems
of banking industry.
It can be concluded that for performance analysis, a variety of tools
have been used by the different studies. Review is indicative of the fact that
most of the studies done or too aggregative, if somewhere the disaggregation
have been achieved, the coverage is too small. Analysis of a single bank
group based performance and its relation with economic development is
relatively unexplored area of research. The present work filled this research
gap.

*********

c 66 C