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Business Composition

Business Composition

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  • 2 I) Statutory
  • 3.3.4 Operating Expenses
  • 3.3.5 Provision for Loss and Contingencies
  • 3.4.1 Intermediation Cost
  • 3.4.2 Earnable Assets
  • 3.4.3 Net Interest Income
  • 3.4.4 Asset Utilization
  • 3.4.5 Financial Efficiency
  • 3.4.6 Return on Assets
  • 3.4.7 Equity Base
  • 3.4.8 Other Performance Measures

A SYNOPSIS ON “Schedule Commercial Banks Business Composition”

Under The Guidance of: MR. RAVI ARORA Faculty SGIIT, Hisser

Submitted by: Mohan Prakash Enrollment No. 07061107085 MBA (Finance) Remarks of Evaluator Approved/Disapproved

Approved/ Disapproved

(1 Evaluation)

(II Evaluation)

Session:-2007-09 Specialization – Finance


Declaration I Dipika Rani Roll No 0610405 Class MBA Finance 2nd Year (4th semester) “Haryana School of Business” hereby declare that the project entitled “Business Composition of Scheduled Commercial Banks” is my original work and has

[Signature of the Candidate]

Acknowledgement No task is a single man’s effort. Cooperation and coordination of various people at various places go into the successful implementation. It is a great pleasure to have the opportunity to extend my heart–felt thanks to everybody who helped me through the progress of this project. It would be prudent to commence this report with a sincere tribute to all those who played an indispensable role in the accomplishment of this work and obliged whenever and wherever their able guidance was required.

I would like to pay my gratitude to my college mentor Professor M.S.Turan (Professor at H.S.B.) for providing his timely, expert and valuable suggestions as and when required.

Thanking you,

Signature of supervisor DIPIKA RANI ROLL NO. – 0610405

Problem statement 2. Utility of Study 8.Introduction Chapter 2.Review of literature Chapter 3 1.Contents • • • • • • • • • • Title Page Declaration Certificate From Guide Acknowledgement Contents List of tabels List of figures Chapter 1 . Limitation of study 7. Plan of study 6. Analysis of Data 5. Conclusion 9. Source & nature of Data 4. Bibliography . Research Objective 3.

While lending banks also keep into account the wider national objectives of economic and social development. Risk managers face a wide range of demands from working with multiple variables to funding technology. The term CREDIT comes from Latin word ‘CREDO’ meaning ‘I TRUST’. and the fact that the bulk of funds lent belong to depositors. Different methods of assessment of project financing are carried out by Credit Department of a bank. Project funding and Credit Risk management depends upon bank’s ability in generating any type of Volume and Mix of loans depending on two factors – bank’s strength and Credit requirement in operational area. ensuring optimum return. trade and services. as: 'Banking' means accepting." Banks are business institutes with the undoubted objective of earning profit.1) INTRODUCTION TO BANKS Finance occupies an important place as input in every economic activity. The accumulate the savings in the form of demand and time deposits. for the purpose of lending or investment. This convenience of easy . order or otherwise. of deposits of money from the public repayable on demand or otherwise and withdrawal by cheques. The access to retail funds is on account of the cheque facility that permits an account-holder to transmit funds at will. The word ‘Banking’ as being defined by Sec. Lending Business provides a major part of the total income of the bank. The art of managing risk is more challenging then ever now a days. it is necessary that funds be deployed on a sound and realizable basis.CHAPTER 1 (A) INTRODUCTION TO BANKING (1. which are then deployed in financing agriculture. Presently due to competition and meeting the demanding standards of customers has made lending a tough job for bankers. Banks deploy a major portion of fund by way of loan and advances. industry. Given these. Banks have the advantage of low cost funding as they have access to the retail fund base. It is rightly termed as “Science of Money”. draft.5 (b) of the Banking Regulation Act. Banks are institutions that channelise the savings of individuals and entities into investment in productive assets in the economy. 1949.

These three banks were amalgamated in . the Bank of Bengal in 1809. During the Mogul period. The others.2 INDIAN BANKING SYSTEM – THE HISTORY Banking in India has its origin as early as the Vedic period.transmission of funds has led to accumulation of funds at relatively low interest rates across numerous retail accounts thereby providing the bank with enormous resources at low cost of funds. During the days of the East India Company. were the Bank of Hindustan and the Bengal Bank. The General Bank of India was the first Joint Stock Bank to be established in the year 1786. These three banks also known as Presidency Banks were independent units and functioned well. which followed. 1. the Bank of Bombay in 1840 and the Bank of Madras in 1843. who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest. it was the turn of the agency houses to carry on the banking business. the great Hindu Jurist. the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. The Bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. In the first half of the 19th century the East India Company established three banks. It is believed that the transition from money lending to banking must have occurred even before Manu.

banking in India has evolved through four distinct phases: • Foundation Phase can be considered to cover 1950s and 1960s till the nationalization of banks in 1969. the Imperial bank of India commenced its operations after taking over the businesses of all three presidency banks. The World War II period saw the proliferation of banking institutions in country and by 1947 there were 558 commercial banks operating in India of which 99 were scheduled banks and 459 were non-scheduled banks. POST-INDEPENDENCE PHASE: In the five decades since independence. In January 1921. The Bank of Bombay and Bank of Madras were established in 1840 and 1843 respectively. for meeting the requirements of Indian economy. With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. which received its charter in 1809. The first comprehensive legislation relating to banking in country came with the adoption of the Banking Companies Act. A major development was transformation of Imperial Bank of India into State Bank of India in 1955. in some form or the other. The Deposit Insurance Corporation was established in January 1962 as a wholly owned . The focus during this period was to lay the foundation for a sound banking system in the country.1920 and a new bank. money lending and indigenous banking. The joint stock banks were followed by three Presidency Banks. 1949. the ‘Imperial Bank of India’ was established on 27th January 1921. The Reserve Bank of India was constituted in January 1935 and it commenced its business in April 1935. RBI tightened its control over the Commercial banks due to failure of Pallai Central Bank in August 1960. PRE-INDEPENDENCE PHASE : Although. the first among them being the Bank of Bengal. was in operation in ancient India Modern banking has been legacy of the British rule. As a result the phase witnessed the development of necessary legislative framework for facilitating re-organization and consolidation of the banking system. The first Joint Stock bank was established in Calcutta in 1870 by one of the Agency House. this situation lead to the entry of Exchange Banks (Foreign banks) towards later half of the nineteenth century. As these banks do not conduct exchange and remittance between Indian banks and other countries.

3 INDIAN BANKING SYSTEM – THE CURRENT SCENARIO Banking Industry in India has always revolved around the traditional function of deposits and credit. credit flows were guided towards the priority sectors. an event that was to transform the banking industry beyond recognition. Expansion Phase had begun in mid 60s but gained momentum after nationalization of banks and continued till 1984. Most importantly. The National Bank of Agriculture and Rural Development was established in 1982 to organize the industrial support to agriculture and rural development. A determined effort was made to make banking facilities available to the masses. The most memorable event relating to banking industry. Reserve Bank of India introduced the Head Bank Scheme towards end of 1969. the macro economic crisis faced by the company in 1991 paved the way for extensive financial sector reforms which brought deregulation of interest rates. Their role had been defined as to assist the overall . the phase started in 1985 when a series of policy initiatives were taken by RBI which saw market slowdown in the branch expansion. Sarauja gave report on structure and functioning of banks in feb. credit management.S. The banking commission headed by R. Reform Phase. technological changes. the regional rural banks came to be established in 1975.• • • subsidiary of RBI. In 1980 six larger private sector banks were nationalized bringing the number of nationalized banks to 20. which had no access to banking hitherto. more competition. However this weakened the lines of supervision and affected the quality of assets of the banks and pressurized their profitability and brought competitive efficiency of the system at low ebb. etc. autonomy packages. Branch network of the banks was widened at a very fast pace covering the rural and the semi-urban population. Measures were also taken to reduce the structural constraints that obstructed the growth of money market. Based on the recommendations of the Gadgil Study Group and the Narasimhan Committee. According to recommendations of Narasimhan Committee. customerservice. capital adequacy. Attention was paid to improving housekeeping. Due to amalgamation and liquidation in 1967 the members of commercial banks declined to 91 of which 71 were scheduled banks and 20 were non-scheduled banks. Consolidation Phase.1972. staff productivity and profitability of banks. was the nationalization of 14 major banks in July 1969. 1. prudential guidelines on asset classification and income recognition.

But with most of the top league players planning to enter this business. net banking etc. this new business should result in substantial revenues. This move will enable these banks to raise further capital to adhere to the CAR requirements and will also help in changing their perception in the market vis-à-vis the private sector banks. The rules of the game have been changing with the RBI introducing new norms to make banks more accountable and to adopt the practices followed worldwide. The recent merger of Times Bank with HDFC Bank was an important step in this direction. has now been facing stiff competition not only from foreign players but also from the new generation private sector banks. their efficiency ratios (employee’s productivity and profitability ratios) have also improved significantly. Most of the banks have now been trying to function on the concept of a Universal Bank. While. Most of the banks are also planning to enter the insurance business and are in the process of identifying their strategic partners. the more efficient and pro active players would be able to take a lead. But with the process of liberalization. the banking industry has also undergone tremendous change in the last 5 years. they are taking steps to build themselves into a one stop financial center wherein all the financial products would be available. Mergers and Acquisitions have also started playing their role in the banking industry where lots of players are trying to consolidate their position. Technology has become an important medium of not only attracting new customers but also in retaining them. In order to have a maximum share in this segment. The new generation private sector banks have made a strong presence in the most lucrative business areas in the country because of technology upgradation. most of the new private sector banks have shown interest in inducting a foreign partner in their operations. their operating expenses have been falling as compared to the PSU banks. Apart from the traditional functions of a commercial bank. most of the banks have been introducing new products. In recent times. The market. phone banking. which was largely controlled by the public sector banks. The delivery channels have also been shifted from branches to ATMs. Since most of the banks already have an extensive distribution network. INDIAN BANKING STRUCTURE . Banks have started catering to the retail segment to improve their deposit portfolio. The government is planning to bring down its stake in the public sector banks from 51% to 33%.economic growth with majority of share being controlled by the Government of India in most of the banks.

employment generation. spreads between lending and deposit rates etc. restriction on entry and expansion of private and foreign banks increased. most of the major commercial banks were nationalized in India in 1969. in turn. which may not receive adequate credit otherwise. food procurement programmes. The purpose of priority sector lending was to increase the proportion of credit to those sectors important to the national economy in terms of their contribution to growth. . Thus the social benefits of priority sector lending have proved to be smaller and cost higher than originally expected. left 25 per cent of bank deposits to meet the financial needs of all the remaining sectors. This caused a lack of competition among public banks or between the public and private banks. Concessional priority sector lending imposes a burden on the rest of the economy which must subsidize the cost of such loans and is faced with r3educed credit availability to the more productive investment. For the first time. again at concessional rates. The success of banking sector very much depends on the ownership of banks-whether private or public or mixed-whether the industry is competitive or oligopolistic and the extent of entry restrictions on new banks. affects the banks’ ability to collect savings and channel them into productive investment. left 25 per cent of bank deposits to meet the financial rates. With the nationalization. It is estimated that twenty one percent of the loan advanced by the public sector banks are non-performing. has led to steady decline efficiency. or more equal income distribution. how far it is regulated in terms of interest rates. Of the funds left with banks. This combined with the labour policies of the public sector where employees ‘ salaries promotions are not linked with their job performance. Another effect of the lack of competition is that most banking operations have not computerized as workers oppose it fearing job losses. 40 per cent must be lent to priority sectors at concessional rates and further requirements of loan to the exporting industries. The reserve bank of INDIA also began enforcing uniform interest rates and service charges among nationalized. quality of customer service and work culture in the banks. etc. while the management has felt no pressure to improve efficiency or banking services.The structure of the banking industry affects its performance and efficiency which. A significant proportion of loans were shared by those for whom it was never intended. Some of the priority sector loans were given without adequate safeguards against default.

Since bank nationalization in 1969. priority sector. maintain deposit accounts of all other banks and advances money to other banks. It acts essentially as Government’s banker. It is therefore known as the banker’s bank. Manager of Foreign Exchange • • Manages the Foreign Exchange Management Act. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. the RBI has usually set interest rate. Such a bank does not deal with the general public. protect depositors' interest and provide cost-effective banking services to the public. CENTRAL BANK A bank which is entrusted with the functions of guiding and regulating the banking system of a Country is known as its Central bank. exporters etc. While the RBI followed a low interest rate policy until the mid 1970 the interest rates have been fairly since then. 1999. Important Functions of RBI Monetary Authority: Formulates implements and monitors the monetary policy. Regulator and supervisor of the financial system: • • Prescribes broad parameters of banking operations within which the country's banking and financial system functions. when needed. The Central Bank maintains record of Government revenue and expenditure under various heads. The Reserve Bank of India is the central bank of our country. The Central Bank provides guidance to other banks whenever they face any problem. However a large fraction of loans were subsidized including loans for the public sector. Most of these categories attracted nominal annual interest rate of 13%. Issuer of currency: • Issues and exchanges or destroys currency and coins not fit for circulation. . Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors. Objective: maintain public confidence in the system.

For a satisfactory performance of the vastly increased volume of work some of the central office department has established regional offices at various centers. Formulation of policies and rendering of advice to government on economic and financial matters etc. The EXECUTIVE DIRECTOR comes in between the DEPUTY GOVERNOR and the CHIEF MANAGER The primary functions of the bank are exercised through two separate departments. it is represented by agents & sub agents. The department of non-banking companies located in CALCUTTA.1 SCHEDULED COMMERCIAL BANKS Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act. The governor is assisted at present in the performance of his duties by four DEPUTY GOVERNORS and four EXECUTIVE DIRECTORS. 1934.4. the SBI &its subsidiaries. Internal organization & management of RBI The chairman of the central board of directors of the bank and its chief executive authority is the governor. Developmental role • Performs a wide range of promotional functions to support national objectives. 1.• Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. RBI in turn .the banking and issue departments. These two departments constitute what are known as “local” offices/branches of the bank & are located at sixteen major cities of the country. are mainly attended at headquarters or the central office of the bank located in BOMBAY. Related Functions • • Banker to the Government: performs merchant banking function for the central and the state governments. also acts as their banker. In place where there is no office of the bank. Banker to banks: maintains banking accounts of all scheduled banks.4CLASSIFICATION OF BANKS: 1. He has the powers of general super intendance and direction of the affairs and business of the bank.

At the time of the second world war. a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act. 1949 . In those days. "Scheduled banks in India" means the State Bank of India constituted under the State Bank of India Act. 1934 (2 of 1934). out of which over 1400 were non-scheduled banks. but does not include a co-operative bank". 1955 (23 of 1955). or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act. COMMERCIAL BANK: Banks in India were started on the British Pattern in the beginning of the 19th century. or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act. foreign banks (45).918 branches. nationalized banks (19). There are more than 300 scheduled banks in India having a total network of 64. 1959 (38 of 1959).includes only those banks in this schedule which satisfy the criteria laid down in section 42(6)(a) of the act. 1980 (40 of 1980). private sector banks (32). about 1500 joint stock banks were operating in undivided India. Hence the Government has to step in and the Banking Companies Act. The scheduled commercial banks in India comprise of State bank of India and its associates (8). A quiet few of them were managed by bad and dishonest management and naturally there wer6e a number of bank failures. all the banks were joint stock banks and a large number of them were small and weak. 1970 (5 of 1970). a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act.

1999. State bank of India and its associates (8). co-operative banks and regional rural banks. 1934. foreign banks. Non-scheduled banks are those joint stock banks. the other nationalised banks (19). As at the end of 30th June. 1956 or an institution notified by the Central Government in this behalf or a corporation or a company incorporated by or under any law in force in any place outside India. which are not included in the second schedule of the RBI act on account of the failure to comply with the minimum requirements for being scheduled. It must be a state co-operative bank or a company under companies act. empowering the Government of India to compulsorily amalgamate weak units with stronger ones on the recommendations of RBI. The scheduled banks enjoys certain privileges like approaching RBI for financial assistance. 42(6) (a) of the Reserve Bank of India Act. In order to strengthen the weak units and revive public confidence in the banking system. there are only 3 non-scheduled commercial banks operating in the country with a total of 9 branches. a bank should fulfill the following conditions: 1. The scheduled commercial banks in India comprise of. As on 30th June. a new section 45 was inserted in the Banking regulation Act in September. submission of returns etc.Scheduled Banks and Non-scheduled Banks. It must have a paid-up capital and reserves of an aggregate value of not less than Rs 5 lakhs. private sector banks. 1997. Scheduled banks are those banks which are included in the second schedule of the Reserve Bank Act. there were 300 scheduled banks in India having a total network of 64.(which was subsequently renamed as Banking Regulation Act) was enacted which led to gradual elimination of weak banks who were not in a position to fulfill the various requirements of the Act. 2. 3. It must satisfy RBI that its affairs are not conducted in a manner detrimental to the depositors. they have certain obligations like maintaining certain cash reserves as prescribed the RBI. In terms of Sec.918 branches among them. 1960. refinance etc and correspondingly. Today banks are broadly classified into two . TYPES OF COMMERCIAL BANKS • • • Public Sector Banks Private Sector Banks Foreign Banks .

But most of these banks have concentrated on the metropolitan cities of the country and have been able to do reasonably well. RBI was very slow in granting any further approvals to these banks. Its predecessor. the United Bank of India Ltd. Bank of Baroda and Dena Bank. It was incorporated in August 1994 as HDFC Bank Limited with registered office in Mumbai and commenced operations as Scheduled Commercial Bank in January 1995 FOREIGN BANKS: Foreign banks have been doing the normal banking business in the country. Examples of public sector banks are: State Bank of India. the nationalization of 6 more commercial banks on April 15. when the norms were relaxed later on. These banks . Comilla Banking Corporation Ltd. The Public Sector in India banking emerged to its present position in three stages. 1969 and last. to set up a bank in the private sector banks in India as part of the RBI's liberalization of the Indian Banking Industry. It is one of the fastest growing Bank Private Sector Banks in India The first Private Bank in India to receive an in principle approval from the Reserve Bank of India was Housing Development Finance Corporation Limited. The first private bank in India to be set up in Private Sector Banks in India was IndusInd Bank. in the Public Sector Banks.These are banks where majority stake is held by the Government of India or Reserve Bank of India. 1980. banks constitute the Public sector in the Indian commercial Banking. Comilla Union Bank Ltd. the conversion of the exiting imperial Bank of India into the State Bank of India in1955. (1922) and Hooghly Bank Ltd. Private Sector Banks Private banking in India was practiced since the beginning of banking system in India. the entry of new foreign banks and expansion by existing foreign banks were prohibited. During the period of nationalization. 1969. Thus 27. (1914). Corporation Bank. First. etc.. was formed in 1950 with the amalgamation of four banks viz. (1918). Bengal Central Bank Ltd. United Bank of India is one of the 14 major banks which were nationalized on July 19. Second the nationalization of 14major commercial banks on July 17. Even. (1932). followed by the taking over of the 7 state associated banks as its subsidiary banks.Public Sector Banks Among the Public Sector Banks in India.

A number of new players have entered and the existing players have consolidated their position in the market.4. Industrial Finance Corporation of India (IFCI) and State Financial Corporation (SFC) are examples of development banks of India. some of the foreign banks have entered the retail segment and introduced a number of new products in the market. The current RBI norm does not allow an Indian Bank to place equity with a foreign bank carrying branch transaction in the country. in case of under subscription of the issue by the public. 1. for using latest technology. These bank norms are however expected to be eased. In the last couple of years. This has intensified the competition in the banking sector and has made most of the old players rethink their strategy. Looking at the potential of the Indian markets. They also undertake other development measures like subscribing to the shares and debentures issued by companies. Any co-operative bank as a society is to function under the overall supervision of the Registrar. As regards banking business. Most of the developments in the last couple of years have been in favor of the new generation private sector banks that have equipped themselves with latest technology and have also focussed more on fee-based revenues. In the post liberalization period.have used the latest technology to compensate for the limited number of branches they have. some of the foreign banks in recent times have expressed their plans of acquiring few Indian banks for further expansion. 1. Such financial assistance is provided by Development Banks. the society must follow the guidelines set and issued by the Reserve Bank of India.3 CO-OPERATIVE BANK People who come together to jointly serve their common interest often form a co-operative society under the Co-operative Societies Act.4. When a co-operative society engages itself in banking business it is called a Co-operative Bank. Co-operative Societies of the State. . or for expansion and modernization.2 DEVELOPMENT BANK Business often requires medium and long-term capital for purchase of machinery and equipment. The society has to obtain a license from the Reserve Bank of India before starting banking business. there has been a sharp increase in the total business done by the foreign banks.

village or town level.4. the risks involved in it and the competition to be faced. These banks provide loans to their members (i. They engage themselves in some specific area or activity and thus. district level and state level. These banks are organized at three levels. 1. They mobilize funds and help in its proper channelisation among various sectors. They are primary credit societies.1. The money reaches the individual borrowers from the state co-operative banks through the central co-operative banks and the primary credit societies.4 SPECIALIZED BANKS There are some banks. Primary Credit Societies: These are formed at the village or town level with borrower and non-borrower members residing in one locality. The bank grants loans to exporters and importers and also provides information about the international market. primary credit societies) and function as a link between the primary credit societies and state co-operative banks. etc. SIDBI and NABARD are examples of such banks. State Co-operative Banks: These are the apex (highest level) co-operative banks in all the states of the country.. It gives guidance about the opportunities for export or import.1 TYPES OF CO –OPERATIVE BANKS There are three types of co-operative banks operating in our country. EXIM bank can provide you the required support and assistance. which cater to the requirements and provide overall support for setting up business in specific areas of activity.3. Small Industries Development Bank of India (SIDBI): . Export Import Bank of India (EXIM Bank): If person wants to set up a business for exporting products abroad or importing products from foreign countries for sale in our country.e. The operations of each society are restricted to a small area so that the members know each other and are able to watch over the activities of all members to prevent frauds. central co-operative banks and state co-operative banks. are called specialized banks. EXIM Bank. Central Co-operative Banks: These banks operate at the district level having some of the primary credit societies belonging to the same district as their members.4.

especially. It also finances modernization of smallscale industrial units. small-scale industries. loan on easy terms can be available through SIDBI.If person wants to establish a small-scale business unit or industry. Recently. Their net profits are much more than other rival banks. finance and develop small-scale industries. SBI plans to invest $200 millions on technology over the next two years. But on the other hand some new private sector banks are fully computerized and they are launching a gateway to facilitate intra-bank transfer of funds through Internet. both short-term and long-term. a software company with core strengths in internet banking products. NATURE OF BANKING In India around 73% of the bank branches are located in rural and semi-urban areas. use of new technology and market activities. UTI Ltd are fully computerized and they are providing services like ATMs. ICICI Bank Ltd. In the country as a whole only 10% of the branches of the public sector banks are fully computerized and 22% are partially computerized. The gap regarding the productivity Information technology has made . online services and they are not lagging behind in any way. But these are the plans and no public sector bank seems to be in a position right now to make a serious Foray into internet banking. each public sector bank will spend about $50 million over the next five years. They are bringing banking services to the very door step. The aim and focus of SIDBI is to promote. branch network is on increasing trend. According to ways India. It provides financial assistance. to cooperative credit. fishing. etc. If a person is engaged in agriculture or other activities like handloom weaving. in the field of agriculture. Some new private sector banks like Bank of Punjab LTD. National Bank for Agricultural and Rural Development (NABARD): It is a central or apex institution for financing agricultural and rural sectors. Citibank are very active on this front and concentrating on Internet and e-commerce to offer their clientele a whole range of products under one roof. they have started to penetrate in semi-urban and rural sector of India. Most public sector banks have hundreds of branches without computers and inter bank connectivity is a distant possibility. cottage and village industries handicrafts and allied economic activities in rural areas. NABARD can provide credit. But some have started moving in this direction. through regional rural banks. Especially HDFC Bank Ltd. IDBI Ltd. Other public sector banks too have started spending on Information Technology. Their profits.

the banking services sector faster. The large corporate is able to offer an attractive financing option to its buyers and thus capture ‘channel loyalty. This clearly indicates the low profitability of Indian Banks. The large corporate is able to pursue its aggressive sales plan. NEEDS FOR THE BANKING The fast expansion and spread of the banking sector in India after 1969 have resulted in surfacing of several internal deficiencies in the system. Due to these deficiencies. work technology remained stagnant and the transaction cost kept on increasing over the years. export credit. In spite of positive achievements and meeting various socio-economic goals. the expenditure by banks kept a higher pace of increase particularly administrative costs. has experienced several problems mainly of the profitability and viability of the Banks. 4. the Banking system in India during 1980s. The major factors affecting the profitability of Indian Banks include higher SLR and CRR requirements. These factors contributed for less income realization by Public sector Banks. If the large corporate is an MNC. employment. profitability. etc. 3. political and administrative interference. . contributed to the lower profitability of public sector Banks BENEFITS OF BANKS Benefits of Banks to Large Corporate 1. deterioration in the quality of assets. food credit. Similarly. lack of improvement in operational methods leading to higher transaction costs. The Narasimham Committee observed that gross profits before provisions were no more than 1. more efficient and more economical. The large corporate is able to save on the cash discounts which it offers to the buyers for early realization of the receivables. it is no longer constrained by its global credit policies. branch expansion of public sector banks into Rural and semi-urban areas. customer service was affected badly. With the introduction of Information Technology. banking in India will never be the same again. priority sector advances. Its impact can be seen on the efficiency of banks.10 per cent of working Funds. productivity. The internet is taking banks in the directions other than loans and deposits. etc. 2. psychology of customers. sick industrial advances.

8. 6. 7. The large corporate is freed from the administrative hassles of receivables management. The large corporate may be able to avail cash discount which is offered by its suppliers. The large corporate is freed from the cost arising out of the requirement of placing advance with the supplier and can ask for better pricing from the supplier on account of the finance made available through the bank. FUNCTION OF BANKS PRIMARY FUNCTION • • • • • • • • • • • • Accepting of deposits Fixed or time Deposit Account Current or Demand Deposit Account Saving Deposit Account Home safe Saving Account Recurring Deposit Account Advancing of loans Cash credit Loans and Advances Discounting of the Bill of Exchange Investment in Government Securities Credit Creation SECONDRY FUNCTION • • • • • • • • Agency or Representative Functions Collection and Payment of Various Items Purchase and sale of Securities Trustee and Executor Remitting of Money Purchase and Sale of Foreign Exchange Letter of References Other Agency Functions .5. The large corporate payable cycle is increased.

GENERAL UTILITY SERVICES • • • • • • • • • • Locker Facilities Business Information and Statistics Help in Transportation of Goods Acting as a Referee Issuing letters of credit Acting as underwriters Issuing of travelers cheques and credit cards Issuing of Gift cheques Merchant Banking Services Dealing in Foreign Exchange SOCIAL FUNCTION • • • • • • • Capital Formation Inducement to Innovations Impact on the rate of Interest Role in the Development of Rural sector Helpful in pushing-up the Demand Monetary policy Employment BANKING REGULATION ACT. has been divided into the following five parts: Part 1: Preliminary (sec 1to 5A) Part2: Business of banking co. 1949. 1949 The banking regulation act was passed and consolidates and amends the law relating to banking companies. (sec 6 to 36A) Part 2A: Control over management (sec 36AA to 36AC) . It come into effect from 16 March 1949 & applies to the whole of india. The banking regulations act.

A.Part 2B: Prohibition of certain activities in relation to banking companies (sec 36AD) Part 2C: Acquisition of the undertakings of banking company in certain cases (sec 36AE to 36AZ) Part 3: Suspension of business & winding up of banking co. was further amended by banking laws (amend) act 1983 (effective from 15-2-1984).R. (sec 36 Bto45) Part3A: Special provisions for speedy disposal of winding up proceeding (sec45A to 45X) Part3B: Nomination of deposit accounts & ledgers. The banking public financial institutions & negotiable instrument laws (amended) act 1988 and the banking regulation (amended)act 1994. The following are the Scheduled Banks in India (Public Sector): • • • • • • • • • • • • • • • • • State Bank of India State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore Andhra Bank Allahabad Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank . Part4: Miscellaneous (sec 46 to 55A) Part5: Application of the act to co-operative banks (sec 56 effective from 1st march 1966) The B.

• • • • • • • • • • Indian Overseas Bank Indian Bank Oriental Bank of Commerce Punjab National Bank Punjab and Sind Bank Syndicate Bank Union Bank of India United Bank of India UCO Bank Vijaya Bank The following are the Scheduled Banks in India (Private Sector): • • • • • • • • • Vysya Bank Ltd Axis Bank Ltd Indusind Bank Ltd ICICI Banking Corporation Bank Ltd Global Trust Bank Ltd HDFC Bank Ltd Centurion Bank Ltd Bank of Punjab Ltd IDBI Bank Ltd The following are the Scheduled Foreign Banks in India: • • • • • • • • • • • • American Express Bank Ltd. Deutsche Bank A. Hongkong and Shanghai Banking Corporation Standard Chartered Bank. Bank of America NT & SA Bank of Tokyo Ltd. Banquc Nationale de Paris Barclays Bank Plc Citi Bank N. ANZ Gridlays Bank Plc. The Chase Manhattan Bank Ltd. Dresdner Bank AG .C.G.

To promote sound and progressive banking principles and practices 2. Foreign banks having offices in India. Today IBA has more than 156 members comprising of Public Sector banks. Indian Banks Association (IBA) The Indian Banks Association (IBA) was formed on the 26th September. procedures and banking practices 6. Developmental financial institutions. need for financial reforms Financial sector reforms are most essential not only to ensure the efficient allocation of funds available for investment but also to strengthen the implementation of both fiscal and monetary policies and preserve macro economic stability. This is because further liberalization in the presence of large public sector borrowing requirement and consequently high interest rates cold weaken the financial system as banks non. technical. legal. Federations. administrative and professional matters. Private Sector banks. This means the bank will have . productivity and improve systems. 2006. To encourage sports and cultural activities among bank employees.RBI expects banks to adopt the Standardized Approach for the measurement of Credit Risk and the Basic Indicator Approach for the assessment of Operational Risk. To project good public image of banking through publicity and public relations. The comprehensive restructuring of the public sector banks needs to be completed. 5. To pool together expertise towards common purposes such as reduction in costs. The functioning of IBA 1. 7. etc. To collect. merchant banks. To render assistance and to provide common services to members. classify and circulate statistical and other information.performing assets will increase it is essential to take up the priority financial sector reform. 2007 and has suggested that banks should adopt the new capital adequacy guidelines and parallel run effective April 1. most of financial reforms proposed in INDIA can only be implemented if fiscal consolidations can be achieved. housing finance corporations. However. 3. To organise co-ordination and co-operation on procedural. 4. increase in efficiency. 1946 with 22 members. mutual funds. RBI has also specified that the migration to Basel II will be effective March 31. Urban Co-operative banks.

Inadequate prudential supervision and regulation of domestic financial institutions and markets. There are some points which reflect the need of banking sector reforms: 1. the pursuit of high return but low probability investment by institution with low or negative net worth. auditing and disclosure practices in the banking sector weakened the market discipline in INDIA 2. The financial health 3. Thus. and portfolio decision. nor were Indian firms allowed to tap the international capital for productive investment.more managerial autonomy over branch networks. Inadequate accounting. At the same time. the government’s equity share in these banks needs to be reduced below to fifty percent so as to create incentives for improved bank and management t and profitability. namely. The institutional infrastructure Banking Reforms . It is clear that the phase in which the development of India’s financial sector could benefit from direct government ownership is long over and that in third new phase the government’s most important and challenging role is full filling its overall responsibilities and in strengthening the institutional base of financial market. excessive external borrowing by the government to finance current account deficits and low return public sector investments over the 1980 led to build up of a foreign debt and balance of payment crisis in 1991. 3. which open the way for corruption. Implicit government guarantees encourage excessive. unsustainable capital inflows. The policy frame work 2. employments and compensation issues. banking sector reforms have been concerned with improving the following areas: 1. thus retarding growth. Capital markets were under control of the government until 1991. On the other hand. Foreigners were not permitted to invest in the Indian share or bond market. connected lending and gambling for redemption.

4. 2. In order to support the major changes that took place in trade and industrial policies the depositors and the investors. provisioning and capital adequacy. mobilization of savings and in creating employment opportunities for half a million persons. Frauds. corruption and misutilization of public money were discovered and as many economists warned. Reforms of Banking SectoR A number of reform initiatives have been taken to remove or minimize the distortions that affect the efficient and profitable functioning of banks. in November. These include the following: 1. The committee on Financial system well known as the Narsimham Committee. did acknowledge the spectacular success of the public sector banks since the major banks were nationalized on 19 July. a thorough review of the financial system was felt necessary. have been implemented since 1992-93 to ensure safety of the financial system. The medium target of 10% in CRR has also been achieved through the committee recommended that it should be reduced by 3 to 5 percent of the total deposits of the banks. set up in 1991. in that trend would continue without any change. 3. The number of lending rates has been reduced from six to three rates with . The nationalized banks have been allowed direct access to capital markets to mobilize funds from the public although they will continue to remain in the control of the Government which will retain 51 percent of the equity. has undergone a very special transformation in the past three decades. 1969. Accounting and prudential norms related to income recognition. in line with the accepted international standards. Reduction in SLR committee has been. The regulated interest rate has been rationalized and simplified. the banking industry might become a white elephant by the turn of the present century. such spectacular development was witnessed in the spread of branch network of banks. by and large.e. to recommend measures for bringing about necessary reforms in the financial sector. Hence. the financial institutions and the capital markets. But for twenty years after the nationalization.The Indian Financial system comprising the commercial banks. rather than in the improvement of the services to the customers. the Narasimham Committee was set by the Government of India in August 1991 which submitted its report within three months i. achieved.

90 billion). 9. followed by the new generation private sector banks (Rs.5. A board for financial bank supervision has been established to strengthen the supervisory system of the BBI. over the short term. 120 billion to meet the capital charge requirement for operational risk under Basel II. over the long term. the capital charge requirement for operational risk would grow 15-20% annually over the next three years. 1993 was enacted for setting up of dedicated tribunals for expeditious adjudication and recovery of debt. If the asset growth witnessed in the past and the expected growth trends will continue. Transparent guidelines or norms for entry and exit of private sector banks have been stipulated. Most of this capital would be required by the public sector banks (Rs. and the old generation private sector bank (Rs. Movement of interest yield on Government securities towards market related rates has been allowed subject to prudential guidelines. In India. two concessional rates and a floor rate for all advances above rupees two lakhs. IMPACT ON BANKING SECTOR Indian banks would need additional capital to the extent of Rs. commercial banks may need to augment their regulatory capitalization levels in order to comply with Basel II. The recovery of debts due to banks and financial institutions act. 11 billion). 180-200 billion over the medium term. 7. they would derive benefits from improved operational and credit risk management practices. The implementation of the new norms under the reform measures will lead to considerable impairment of capital in some of the nationalized banks which have to recapitalize. 7.5 billion). 8. However. . which implies that the banks would need to raise Rs. Implementation of Basel II is likely to improve the risk management systems of banks as the banks aim for adequate capitalization to meet the underlying credit risks and strengthen the overall financial system of the country. 6.

The Accord stands on three pillars: (a) Risk Management. 2007. . the succeeding review is helpful in crystallising the research objectives of the present study. System and Controls (i. Assets Quality. The supervisory strategy in India at present comprises both off-site surveillance and on-site inspection and control system internal to banks.. Peek and Rosengren (1996) established that the derivatives have become an essential instrument for hedging risks. Though in brief. yet moral hazard can lead to their misuse by problem banks. He suggested a new channel (different to bank runs) between liquidity risk and banking sector instability. Collazos Paul (1995) analyzed how liquidity shocks would affect the strategies followed by the bankers. in its Report on On-Site Supervision. Padmanabhan Working Group (1995). The period for this purpose is purposively selected because a research work bearing relevance to present study can be expected to justify its findings only when sufficient time has elapsed after the implementation of the reforms. element of institutional success: management quality.CHAPTER -2 REVIEW OF LITERATURE Basel II accord is already in vogue implementation by March. The study observed that the role of banks supervisors . and for Foreign Banks four ratings factors. namely. Quality is assessed using data envelopment analysis (DEA). CACS). yet crucial. Compliance. recommended for supervisory interventions and introduction of a rating methodology for banks on the lines of CAMEL model with appropriate modification to suit Indian conditions. Barr and Siems (1996) presented new failure-prediction models for detecting a bank’s troubled status up to two years prior to insolvency using publicly available data and a new category of explanatory variable to capture the elusive.e. CAMELS.Capital Adequacy. which views a bank as transforming multiple inputs into multiple outputs.e. (b) Supervisory Function and (c) Discipline. in particular their probability of exit. The present chapter incorporates review of relevant literature the scholars have produced since 1995. The Working Group has recommended six rating factors i.

Gilbert. banking legislation in the early 1990s. This study prioritizes the use of semi parametric and non-parametric methods which allow us to measure the effect of explanatory variables in the process of bank failure together with duration dependence effects. . One such proposal recommended using SND yield spreads as the triggers for mandatory supervisory action under prompt corrective action guidelines introduced in U. They compared the ability of two models to predict downgrades of supervisory rating to problem status: the Board staff model. the possible misuse of derivatives by troubled banks should be of concern to regulators. Meyer and Vaughan (2000) examined the potential contribution to bank supervision of a model designed to predict which banks will have their supervisory ratings downgraded in future periods. which was estimated to predict bank failures. Persons (1999) presented the combined qualitative and quantitative information from financial statements and auditors’ reports with logistic models to differentiate failed from surviving finance companies in Thailand. Kroszner (2001) examined the private interest theory of regulation can for the pattern of bank branching deregulation during the last 30 years. and a model estimated to predict downgrades of supervisory ratings Evanoff and Wall (2001) observed that there have been a number of recommendations to increase the role of subordinated debt (SND) in satisfying bank capital requirements as a preferred means to discipline the risk-taking behavior of systemically important banks. Because a relatively large number of banks active in the derivatives market have low capital ratios and are considered institutions with a significant risk of failure by bank supervisors.should be to limit the opportunity through more comprehensive data reporting requirements and closer supervisory scrutiny of derivatives activity at problem banks. Dabos and Escudero (2000) studied the role played by several financial and economic indicators in determining the process of bank failure in Argentina after the Maxican crisis known as the “tequila effect”. Beneficiaries of branching regulation have supported a coalition favoring geographical restriction despite their costs to consumers. These models have relatively high predictive ability for failed finance companies and low expected costs of misclassification. While some of the results also are consistent with the public interest theory.S. Currently such action is prompted by bank capital ratios.

Trehan and Soni (2003) analyzed the operating efficiency and its relationship with profitability. They observed that investors’ views on the financial condition and prospects of banking organizations can be distilled from stock prices. the proportion of various types of advances etc.Shirai (2001) focused on India’s banking sector which has been attracting and increasing attention since 1991 when a financial reform programme was launched. She examined the difference in various aspects of the working results of the public sector banks and private banks when compared with foreign banks. Geyer and Steyrer (2003) examined the relation between performance indicators of 20 different banks and transformational/ transactional leadership. Third. in the public sector banking industry in India. First. 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. diversification of banks’ business should accompany interest rate liberalization in order to compensate for the expected decline in net interest income and prevent banks from taking excessive risks. using a sample of some 400 observations. the entry of new banks should be promoted provided that they are sufficiently capitalized and technology. share of business of public sector 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. Kantawala (2004) examined the impact of the reforms on Credit Deposit ratio. Mor and Sharma (2003) attempted to provide a more comprehensive approach to management of NPAs in banks.oriented. in the profitability. Vensal and Vensel (2003) presented some historical notes on the development of the Estonian banking system and the capital structure of banks. Mastrone and Piper (2003) examined that market forces might be used to influence the direction of bank regulation. Batra and Dass (2003) concluded that NPA has affected the profitability. This paper assessed whether the reform programme has been successful so far in restructuring public sector banks and what elements of the programme have contributed and tackles some fundamental questions. Shirai (2002) examined India and China both carried out banking sector reforms in the 1990s. He observed that there are three good lessons to be learned from India’s reforms. Investment in Government securities to deposits. Second. Credit to GDP ratio. . then it is necessary to first deal with the micro level issues at the level of each individual intermediary. strict regulations should be introduced to prevent connected lending.

Kapil and Kapil (2005) examined the relationship between the CAMEL ratings and the bank stock performance. Shajahan (2005) studied 100 account holders of ICICI Bank in Chennai for portraying their varying levels of satisfaction. to know the status . Kumar and Dennis (2005) examined the importance of a financial system in the development process of an economy. Sharma and Kawadia (2006) examined the relationship between size and efficiency of Cubes. Ramshastri and Samuel (2006) analyzed the trends in important banking indicator from 1980 to 2005. A comparative analysis of various bank groups with respect to different variables has also identified certain specific problem areas of the respective groups. Singh and Kohli (2006) undertook the study with the objectives: benchmark the Indian listed banks for the future.Reddy (2004) examined the competitiveness of Indian commercial banks in the deregulated period from 1996-2002. Chakrabarti and Chawla (2005) studied the performance and efficiency of commercial banks. Singh and Singh (2006) estimated the impact of the identified variables on the financial margin of the Central Cooperative Banks in Punjab with the help of correlation and multiple stepwise regression approach. give rating to top five and bottom five banks on the basis of their performance. The study attempts to analyze the profitability of the three major banks in India: SBI. covering both pre and post reforms period. and HDFC. Maji and Dey (2006) presented how strongly the process of globalization and liberalization has influenced the Indian banking sector. Mohan (2005) focused on the efficiency and productivity changes in the Indian Banking. Radam and Habibullah (2006) attempted to measure the productivity of the banking industry by employing the nonparametric malmquist index approach. Ramudu and Rao (2006) established that the profitability of Indian banking sector is inevitable. He concludes that there is decline in productivity growth in the banking industry. ICICI. Banerjee and Duflo (2004) observed 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. coverage and focus as also the tools employed. which are the key elements of the efficiency and efficacy of a country’s financial sector. assess the performance of Indian banks on the basis of CAMEL model. Chatterjee and Sinha (2006) made a comparative assessment of the public ad private sector bank intermediation cost efficiency during the reform period Mansor. Bodla and Verma (2006) presented that supervisory system in banking sector is a substantial improvement over the earlier system in terms of frequency.

however. Sharma (2007) conducted a study with the objectives: to study the relationship between assets and liabilities of Indian banks in terms of nature and strength. …. For this purpose. to study the impact of ownership over asset liability management in banks. Janakiraman (2007) examined the capital adequacy guidelines under Basel II Accord. during the year. each) Issued Capital (….shares Notes and Instructions for compilation The Capital owned by Central Government as on the date of the balance sheet should be shown. and to recommend the areas where learned optimism is found to be weak. if any.shares of Rs. reviews the quantitative framework for operational risk and outlined the key challenges and the varying practices in the development of an operational risk framework. the amount. 1949 should be shown under the head ‘capital’.. Balance Sheet Item Schedule Coverage Capital 1. Subscribed. Rao (2007) measured the performance of the banks before and after administration of VRS. CAMEL analysis has been comprehensively used in following order for all the sample units. BRIEF DESCRIPTION OF BALANCE SHEET. the amount of deposit kept with Reserve Bank of India. Issued. PROFIT & LOSS ACCOUNT ITEMS: A. Bhatt (2007) analyzed the banking industry journey from post independence to date. under sub-section 2 of section 11 of the Banking Regulation Act. items which can be combined should be shown under one head for instance ‘Issued and Subscribed Capital’.. should not be extended to the outer column. Notes – General The changes in the above items. In the case of Banking Companies incorporated outside India.. to measure the growth of private sector banking in India. Sinha (2007) evaluated the impact of factors like banks operating efficiency. Hyde (2007) conducted a study with the objectives: to study and compare learned optimism of the employees of nationalized and private banks. Nationalised Reserves Banks & Capital (Fully Surplus owned By Central Government) Other Banks (Indian) Authorised Capital (…. EPW Research Foundation (2007) focused on the professed diversification taking place in the banking sector. Authorised. capital adequacy ownership and bank size on the asset quality for the reforms period. It introduces the concept of operational risk.of technological advancement in private sector banks. to determine the components of assets explaining variance in liability and vice versa. Where necessary. Calls-inarrears will be deducted from the called-up capital while the paid-up value of forfeited shares should be added thus arriving at the paid-up capital. In the case of other Indian banks. Called up capital should be given separately. .

Fixed deposits. Includes balance of profit after Balance of Profit appropriations. overdue deposits. each) Subscribed Capital (…. Includes all demand deposits of the non-bank sectors. Savings Bank .. cumulative and Deposits 3.. The expression Fluctuation ‘reserve’ shall not include any amount written off or retained by way of Reserve providing for depreciation. may be explained in the notes. Surplus on revaluation or sale of fixed assets should be treated as capital reserves. Reserve created in terms of section 17 or any other section of Banking Regulation Act must be separately disclosed. each) Less : Calls unpaid Add : forfeited shares Paid up Capital Banking Companies incorporated outside India I) Statutory Reserves II) Capital Reserves say. Credit balances in overdrafts.shares of Rs. are to be included under this category.. other than those separately classified. Includes all banks deposits repayable on demand. …. renewals or dimunition in value of assets or retained by V) way of providing for any known liability.shares of Rs. III) Share Premium on issue of share capital may be shown Premium separately under this head. etc.2 of Rs. …. capitalisation of reserves. IV) Revenue and The expression ‘Revenue Reserves’ shall mean any other Reserves reserve other than capital reserve. Includes all types of deposits of the nonbank sector repayable after a specified term.Includes all types of banks deposits repayable after a specified term. cash credit accounts deposits payable at call. A. Demand Deposits i) from banks ii) from others II. This item will include a) Investment all reserves. Notes – General i) Movements in various categories of reserves should be shown as indicated in the schedule.. inoperative current accounts. fresh issue of capital. Includes all savings bank deposits (including inoperative savings bank accounts). The expression ‘capital reserves’ shall not include any amount regarded as free for distribution through the profit & loss account. In case of loss the balance may be shown as a deduction.I. fresh contribution made by the Government. …. each) Called up Capital (….. etc. matured time deposits and cash certificates.

Deposits. c) Deposits under special schemes should be included under term deposits if they are not payable on demand. like margin deposits. When such deposits have matured for payment they should be shown under demand deposits d) Deposits from banks will include deposits from the banking system in India. Borrowings in Includes borrowings/refinance and rediscount obtained from Reserve Bank India of India. ii) Inter-office transactions should not be shown as borrowings. Export-Import Bank of India. iii) Funds raised by foreign branches by way of Borrowings . if any) II. Includes borrowings/refinance and rediscount obtained from i) Reserve Bank commercial banks (including co operative banks) of India Includes borrowings/refinance and rediscount from Industrial Development ii) Other Bank of India. should be treated as branches outside demand deposits India. etc. foreign banks which may or may not have a presence in India. co-operative banks. agencies (including liability against participation certificates. This item will be shown separately: Includes secured borrowings/refinance in India and outside India. 4. ii) Deposits of b) Matured time deposits and cash certificates. Term Deposits i) from banks ii) from others recurring deposits. The total of these two items will agree with the total deposits. foreign currency nonresident deposits accounts. i) Deposits of repayment of which is subject to restrictions by its very nature. I. Notes – General a) Interest payable on deposits (whether accrued and due and accrued but not due) should not be included but shown under other liabilities. also should not be included under branches in deposits but shown under ‘other liabilities.Deposits III. cash certificates. National Bank for Agricultural banks and Rural Development and other institutions. Borrowings outside India Secured borrowings included above Includes borrowings and rediscounts of Indian branches abroad as well as borrowings of foreign branches. annuity deposits. etc. ordinary staff deposits. deposits mobilised under various schemes. security deposits from staff.’ India. etc. Notes – General i) The total of I & II will agree with the total borrowings shown in the balance sheet. are to be included under this category. B.

etc. iii) It is proposed to show only pure deposits under the head ‘deposits’ and hence all surplus provisions for bad and doubtful debts contingency funds. iv) Refinance obtained by banks from Reserve Bank of India and various institutions are being brought under the head ‘Borrowings’. mail transfers payable. other liabilities which are not disclosed under any of the major heads such as unclaimed dividend. etc. where the repayment is not free. surplus provisions for depreciation in securities. ii) The interest accruing on all deposits. whether the payment is due or not. Other 5 I. should be classified. proposed dividend/transfer to Government. Inter-Office bankers cheques. V. 6 I. secret reserves. etc. should be treated as a liability.certificates of deposits. Others Includes interest due and payable and interest accrued but not due on deposits and borrowings Includes net provision for income tax and other taxes like interest tax(less advance payment. Deferred this head. surplus provisions in bad debts provision account. other miscellaneous items. notes. pay slip. Interest provisions Accrued The inter-office adjustments balance. representing mostly items in transit and unadjusted items. provisions and funds kept for specific purposes. Liabilities II. depending upon documentation. Cash in hand Includes cash in hand including foreign currency notes (including and also of foreign branches in the case of banks having foreign such branches. inland as well as Tax foreign should be shown here. should be shown under IV. etc. contingency funds which are not disclosed as reserves but are actually in the nature of reserves. telegraphic transfers. Notes – General i) For arriving at the net balance of inter-office adjustments all connected inter-office accounts should be aggregated and the net balance only will be shown. unexpired discount. and III. bonds.office accounts. tax deducted at source. which are not netted off against the relative assets should be brought under the head ‘Others’ (including provisions). Bills Payable Includes drafts. Hence advances will be shown at the gross amount on the asset side. ‘borrowings’ etc. as ‘deposits’. margin deposits. currency notes) Includes the balance maintained with the Reserve Bank Cash and balances with the Reserve Bank of . conveyance. outstanding charges like rent. etc. certain types of deposits like staff security deposits.). should also be included under this head. etc. if in credit. Only net position of inter.

Investments outside . In Current Account with Reserve Bank of India. like gold. Includes residual investments. Balances held with foreign branches accounts by other branches of the bank should not be shown under this head but should be included in inter branch accounts. Includes deposits repayable within Bank of India (other 15 days or less than 15 days’ notice lent in the inter-bank call money than in current market. iv) Debentures and Investments in subsidiaries/associate companies should be included here. account) ii) Balances with other banks in India Current Includes balances held by foreign branches and balances held by Indian accounts Deposit branches of the banks outside India. Securities other than Government securities. II. should be included here. All other investments vi) Others outside India may be shown under this head. The amounts held in ‘current accounts’ and ‘deposit accounts’ should be shown separately. All foreign Government securities including securities issued by local authorities may be classified under this head. Balances with banks and money at call and short notice Includes balances held with the Reserve Bank of India other than in current accounts. Includes all balances with banks in India i) Balances with Reserve (including co-operative banks). and other institutions. Includes iii) Money at call and short notice with banks deposits and short notice. if any. ii) Other approved Investments in shares of companies and corporations not included in item Securities (ii) should be included here.India II. Balances in current accounts and deposit accounts should be shown separately. 7 I) In India of India in Current Account. Bonds A company will be considered as an associate company for the purpose of this classification if more than 25% of the share capital of that company is v) Investments in subsidiaries/ Associate held by the bank. II) Outside India usually classified in foreign countries as money at call i) Current accounts ii) Deposit accounts Investments 8 I. Investments in debentures and bonds of companies and corporations not included in item (ii) should be included iii) Shares here. which i) Government securities according to the Statutes are treated as approved securities. companies. Investments in India Includes Central and State Government securities and Government treasury bills. if any.

will be classified under three heads as indicated and both secured and unsecured advances will be included under these heads. ii) Due from others Fixed 10 I. All advances not classified under (i) and (ii) will be included here. Advances should be broadly classified into ‘Advances in India’ and ii) Covered by Bank/ ‘Advances outside India’. according to the statutes. All advances to the banking sector including co-operative banks will come under the head ‘Banks’. i) Secured by tangible assets In classification under Section ‘A’. joint and co-operative sectors. Reserve Bank are to be classified under the head ‘Priority sectors’. iii) Banks iv) Others II. Premises iii) Consortium advances would be shown net of recoveries from other participating banks/ institutions. to be treated as ‘public sector’. Advances in India will be further classified on Government Guarantee the sectoral basis as indicated. Advances in India Advances to Central and State Governments and other Government undertakings including Government companies and corporations which i) Priority sectors are. Advances outside India i) Due from banks ii) Term loans will be loans not repayable on demand. All the remaining advances will be included under this ii) Public sector head ‘Others’ and typically this category will include non-priority advances to the private. The item will include advances in India and outside India. . All advances or part of advances which are secured by tangible assets may be shown here. i) Bills purchased and Discounted ii) Cash credits. all outstandings – in India as well as outside – less provisions made.I. Advances to sectors which for the time being are classified as priority sectors according to the instructions of the iii) Unsecured C. Advances in India and outside India to the extent they are covered by guarantees of Indian and foreign governments and Indian and foreign banks are to be included.India i) Government securities (including local authorities) Advances ii) Others 9 A. overdrafts and loans repayable on demand iii) Term loans B. Premises wholly or partly owned by the banking company for the purpose Notes – General i) The gross amount of advances including refinance but excluding provisions made to the satisfaction of auditors should be shown as advances.

Items. etc. The inter-office adjustments balance. debentures. should be shown under this head. loose leaf or other ledgers. should be provided for and the provision netted against this item so that only realisable value is shown under this head. will be bank not acknowledged included in this head. every balance sheet after the first balance sheet subsequent to the reduction or III. if in debit. for instance. 12 I. Capital work-inrevaluation should show the revised figures with the date and amount of progress or premises revision made. Stationery and on the balance sheet date. Only exceptional items of expenditure on stationery like bulk purchase of security paper. etc. Interest accrued III. which are shown as quasiasset to be written off over a period of time should be shown here. advance tax paid. usually there may not be any amount of interest stamps due on advances. Only such interest as can be realized in the ordinary course should be shown under this head. the previous (including furniture and balance. V. which are pending adjustments. additions thereto and deductions there from during the year as also the total depreciation written off should be shown. as these items are for internal use. etc. Interest accrued but not due on investments and advances and interest due but not collected on investments will be the main components of this item. Others The amount of tax deducted at source on securities. Only net position of inter.Assets of business including residential premises should be shown against II. under construction Motor vehicles and all other fixed assets other than premises but including furniture and fixtures should be shown under this head. Other assets 11 I. In the case of premises and other fixed assets. Other Fixed Assets ‘Premises’. Tax paid in advance/ tax deducted at source. The value should be on a realistic basis and cost escalation should not be taken into account. advances given to staff by a bank as employer and not as a banker. inland as well as foreign. Inter-office adjustments (net) II. want of particulars. As banks normally debit the borrowers’ account with interest due IV. Accrued income other than interest may also be included here. to the extent that these items are not set off against relative tax provisions should be shown against this item. Where sums have fixtures) been written off on reduction of capital or revaluation of assets. should be shown here. Contingent . which are in the nature of expenses. if in debt.office accounts. For arriving at the net balance of interoffice adjustment accounts. etc. all connected inter-office accounts should be aggregated and the net balances. clearing items. debit items representing addition to assets or reduction in liabilities which have not been adjusted for technical reasons. Claims against the Liability on partly paid shares. etc. This will include non-banking assets and items like claims which have not been met. only should be shown representing mostly items in transit and unadjusted items.

II. Claims against the gent bank not acknowledged as debts. Guarantees given for constituents in India and outside India may be shown separately. Liability for partly paid investments. of outstanding forward exchange contracts This item will include letters of credit and bills accepted by the bank on behalf of its customers. Profit & Loss Accounts sItem Schedule Coverage Contin. Liability for partly paid investments. Guarantee given on behalf of constituents. Guarantees given for constituents in India and outside III. will be included in this head. commitments under underwriting contracts. Acceptances.12 I. debentures. etc. endorsements and other Notes and Instructions for compilation Liability on partly paid shares. liabilities II. Outstanding forward exchange contracts may be included here. Liability on account India may be shown separately. Guarantee given on behalf of constituents. Arrears of cumulative dividends. This item will include letters of credit and bills accepted by the bank on behalf of its customers. are to be included here. B. endorsements and other obligations VI. Other items for which the bank is contingently liable Bills for collection Bills and other items in the course of collection and not adjusted will be shown against this item in the summary version only. Acceptances. Liability on account of outstanding forward exchange contracts IV. Outstanding forward exchange contracts may be included here. Not separate schedule is proposed. b) Outside India V. Arrears of cumulative dividends.liabilities as debts. commitments . estimated amount of contracts remaining to be executed on a) In India capital account and not provided for etc. III. IV. a) In India b) Outside India V.

obligations VI. term loans. Profit (net of loss) on exchange transactions Includes any other interest/discount income not included in the above heads. Interest on balances with Reserve Bank of India the investment portfolio by way of interest and dividend. building & other assets = profit on sale of land. estimated amount of contracts remaining to be executed on capital account and not provided for etc. Interest /discount on earned advances/bills. overdue interest and also interest subsidy. Other items for which the bank is contingently liable Bills for collection under underwriting contracts. relating to such advances/bills. demand loans. money market placement. building & other assets Other Income 14 . if any. building & other assets – Loss on sale of land. Net profit on sale of Investments = Profit on sale of Investments – Loss on revaluation of investments Net profit on revaluation of investments = Profit on revaluation of investments – Loss Net profit on sale of land. call loans. Net Profit on sale of Investments III. export loans. building & other assets V. Income on investments purchased and discounted (including those rediscounted). Commission. Net Profit on revaluation of investments IV. overdrafts. etc. Exchange & brokerage II. Others I. domestic and foreign bills II. and other inter bank funds Includes interest on balances with Reserve Bank and other banks. are to be included here. Profit & Loss Accounts Item Schedule Coverage Interest 13 I. Not separate schedule is proposed. Notes and Instructions for compilation Includes interest and discount on all types of loans and advances like cash credit. Net Profit on sale of land. B. Includes all income derived from III. Bills and other items in the course of collection and not adjusted will be shown against this item in the summary version only.

Interest on RBI/ InterBank borrowings Operating Expenses Provisions & Contingencies Appropriation of Profit III.VI. etc. Telephones. Printing & Stationery IV. Taxes & Lighting III. Advertisement and Publicity V. Interest on deposits II. Miscellaneous Income I. Payments to and provisions for employees II. XI. Directors’ fees. Law charges IX. Income earned by way of dividends. Depreciation on Banks’ property VI. allowances and Expenses VII. Others 16 I. Auditors’ fees & expenses (including branch auditors) VIII. Rent. Postage. from subsidiaries/ companies and/or joint ventures abroad/in India Interest 15 Expended VII. Repairs and Maintenance . etc. PB Legal and other expenses debited in respect of PB Accounts X. Telegram.

Transfer to Statutory Reserves II. Transfer to Proposed Dividend VII.XII. Other Expenditure Provisions & Contingencies made for i) Income Tax ii) Other Taxes iii) NPA’s iv) Investments v) Others I. Transfer to Debenture redemption reserves V. Notes on Accounts Item Schedule Coverage Movement of NPA’s Lending to Sensitive Sectors 17 17 I) Gross NPA’s II) Net NPA’s I) Advances to Capital Market Sector II) Advances to Real Estate Sector Notes and Instructions for compilation . Balance carried over to Balance Sheet C. Transfer to Investment Fluctuation Reserves IV. Transfer to Capital Reserves III. Transfer to Tax on Dividend VIII. Transfer to Other Reserves VI. Insurance XIII.

Maturity Profile of Selected items of Liabilities & Assets Loans subjected to Restructuring and Corporate Debt Restructured Capital adequacy Ratios 17 17 III) Advances to Commodity Sector I) Deposits II) Borowings III) Loans & Advances IV) Investments V) Foreign Currency Assets and VI) Foreign Currency Liabilities I) Standard Assets during the year II) Sub Standard Assets during the year III) Doubtful Assets during the year I) Capital Adequacy Ratio II) Capital Adequacy Ratio – Tier I and III) Capital Adequacy Ratio – Tier II I) Return on Assets II) Business (Deposits+ Advances) per employee III) Profit per employee 17 Business Ratios 17 .

2 RESEARCH OBJECTIVE The objective of the research project is: • • • To gain an insight to the Indian Banking Sector.CHAPTER -3 3. . Lending and Risk go hand to hand. Risk is exposure to uncertainty. The art of managing risk is more challenging than ever now-a-days. they need to know the way through which they come to know what is their business composition? Apart from this one year data’s do-not tell whole of the trend. which method best suits its objective.1 PROBLEM STATEMENT As discussed before Banks carry the business of lending & borrowing. but risk that is misplaced. Risk itself is not bad. misunderstood or unintended is bad. Risk managers face a wide range of demands from working with multiple variables to funding technology. its business. 3. its view and its pocket. So. Each banking institution needs to assess. mismanaged. Studying Fundamental analysis and its application as a tool for analysis of stocks. To know about the business composition of Schedule Commercial Banks. Risk Management is continuously evolving mix of science and art. Risk has two components: Uncertainty and Exposure to that uncertainty. Risk management oversees and ensures that integrity of process with which risks are taken. In this project I have studied the business composition of Schedule Commercial Banks so through which I acquainted with how much percent of their total earnings is through interest income? How much is from non-interest income Banks have now entered in service sector for diversifying risk &earning more profits. Credit risk is most simply defined as potential that a borrower or counter party will fail to meet its obligation in accordance to agreed terms.

5. . Banking reforms and Banking in India as a Introduction part. the secondary data have been obtained from following sources: o o Source from internet. It may be understood as the science of study how research is done systematically. month to complete the project. The data collection for banking will be mainly of secondary. magazines and books. The proposed study is the exploratory cum descriptive. Changing data of banks due to new policy. The main limitation of the project is Time Constraint as I had only 3 2. Limitations 1. To add the information. Researcher has used the questionnaire method for collecting the data from the employees of the selected banks. 3. The data available for research may be manipulated. In it we study the various steps that are generally adopted by the research methods or techniques and also the methodology. Collection of Data The present study is based on the secondary data. To know about the banking industry. Research Design The research design is the conceptual structure within which research is conducted. Research Methodology Research methology is the way to systematically solve the research problem. Internet Fluctuation. 4. Journals.• • Finding out the counter which is profitable and having maximum return in Banking sector. measurement and the analysis. It contains the blue print for the collection.

74 0.09 199298 11.09 36.83 11.21 17.44 15.48 10.08 10.08 22.54 -0.06 20.87 4.3 -7.54 2.77 13.19 16.98 1.08 -6.3 9.02 30.12 36. Research process • • • • • • Review of literature.16 19.73 0.24 14.89 23.21 9.43 OSCB 26.71 21.94 11.98 OSCB 22.25 16.11 26.26 9.79 15.31 15.2 8.13 198591 22.46 13.31 21.56 11.96 17.44 8.38 .o Published and unpublished research works of the various eminent scholars in the field.14 10.06 Growth Rate of Income and Expenditure of Indian commercial Banks in India 19852005 Interest Earned SBI NB FB AB Interest/discount on advances/bills SBI NB FB AB Income on Investments SBI NB FB OSCB AB Interest on balances with RBI and other inter-bank funds SBI NB FB OSCB AB 15.7 14.41 9.07 0.4 14.66 13.42 9.64 21.24 27.6 17.61 8.52 8.57 1999-05 9.44 12.82 7.07 6.56 15.14 39.74 38.76 16.31 21.75 0.31 23.08 19922005 12.56 3.36 10.33 18.11 10.65 -6.31 23.09 36.15 -1.61 12.13 11. earlier studies Designing of Research instrument Secondary Data Collection analysis and interpretation of Data Report writing &discussion of major finding with the guide Submission of Report ANALYTICAL TOOLS Table 3.25 16.4 9.49 12.

35 14.91 13.29 17.02 24.37 13.04 17.26 4.9 28.91 12.88 33.7 17.76 23.26 26.29 22.14 14.02 22.37 10.32 12.92 8.04 13.91 17.63 199298 15.08 33.86 -7.42 15.47 17. exchange and brokerage SBI NB FB AB Total Income SBI NB FB AB Interest Expended SBI NB FB AB Interest on deposits SBI NB FB AB Interest on RBI/inter-bank borrowings SBI NB FB OSCB AB OSCB 28.75 30.23 198591 18.48 23.32 11.96 17.16 12.36 15.11 4.07 24.1 16.79 14.16 20.01 21.88 36.57 12.98 15.19 24.56 19.08 6.65 21.06 18.38 1.05 10.18 15.97 12.05 -6.63 36.36 13.55 16.73 -4.38 16.5 40.99 -0.65 6.84 0.96 23.08 14.08 14.89 5.05 18.54 13.96 12.51 24.42 11.23 15.13 12.9 24.03 16.86 19.51 21.46 Table 3.29 22.77 8.33 12.63 13.62 -11.82 11.05 36.68 13.35 12.03 OSCB 27.56 18.95 8.03 21.36 26.88 15.58 11.09 15.59 Commission.71 16.98 28.5 13.42 14.51 -13.2 27 19.52 11.12 7.09 37.27 0.39 17.26 21.27 11.6 1999-05 8.99 13.9 13.52 15.26 28.09 24.93 21.2 38.47 35.76 41.34 .62 10.06 A Growth Rate of Income and Expenditure of Indian commercial Banks in India 19852005 Operating Expenses SBI NB FB AB Payments to and provisions for employees SBI NB FB 13.7 28.56 7.85 13.36 49.18 15.36 199205 12.58 -6.Other income SBI NB FB AB 18.28 -11.37 2.09 24.7 8.75 28.08 15.17 16.81 7.16 22.77 4.68 16.7 17.2 16.58 16.18 17.82 18.93 40.67 -3.33 16.49 31.75 20.14 OSCB 34.27 14.43 14.02 24.03 8.88 11.41 12.71 2.34 25.5 19.48 13.22 6.44 23.42 23.91 10.15 12.7 17.95 11.08 9.88 OSCB 24.95 14.38 21.76 41.78 18.48 13.76 9.52 OSCB 28.81 16.1 6.57 OSCB 25.12 10.

29 47.84 2.86 21.76 11.31 86.87 20.41 85.34 19.38 14.92 4.14 15.32 23.42 12.26 33.07 Ratios of Income and Expenditure of Indian Commercial Banks 1985 1990 1992 1995 1998 2000 2004 2005 1985-05 1985-91 1992-05 1992-98 1999-05 Interest Income SBI NB FB 88.02 25.13 12.97 AB Total Expenditure (Including Provisions and contingencies and Profit / Loss) SBI NB FB AB Net Profit( Total Income-Total expenditure) SBI NB FB OSCB 42.29 88.42 43.86 OSCB 28.62 28.48 15.85 85.48 12.4 4.95 14.78 3.12 77.54 15.54 32.64 91.38 39.37 16.81 AB Provisions and contingencies SBI NB FB OSCB AB Total Expenses (Excluding Provisions and contingencies) SBI NB FB AB Profit / Loss SBI NB FB OSCB 41.72 43.58 10.58 28.86 84.55 11.48 119.29 47.19 17.58 12.31 92.73 28.46 18.95 49.15 31.99 17.69 86.OSCB 18.59 25.40 88.83 82.08 25.04 12.74 12.33 9.74 18.87 11.04 38.44 38.65 38.93 20.42 43.09 70.15 27.58 16.40 .05 18.16 10.18 86.19 16.72 14.35 12.79 21.01 20 10.27 49.16 32 20.28 36.09 37.98 89.58 12.93 82.72 43.26 18.61 27.06 88.47 16.79 75.42 43.97 91.81 78.34 10.02 53.7 28.36 13.36 27.93 21.06 14.14 15.93 47.5 16.77 16.12 11.63 85.17 89.38 83.55 11.42 35.12 37.56 10.86 37.9 7.75 42.2 33.69 30.37 35.90 89.63 36.5 12.42 35.54 OSCB 49.85 90.79 23.01 21.03 14.28 85.36 80.76 25.17 24.79 14.07 OSCB 26.91 AB Operating Profit( net profit+ provision) SBI NB FB AB Total Expenditure including Provisions SBI NB FB AB 39.13 60.79 21.38 38.56 12.6 3 20.37 35.19 1.04 87.13 60.99 78.74 22.23 19.32 23.02 35.41 14.92 OSCB 27.05 20.99 79.36 13.02 12.85 16.43 14.36 9.19 33.75 77.5 34.16 69.19 35.62 22.81 7.62 10.29 1.87 28.81 12.95 7.20 81.47 16.31 83.2 14.4 14.68 13.34 Table 3.81 23.54 32.72 37.87 28.38 79.28 19.85 32.62 80.32 9.83 88.51 12.47 9.97 13.65 21.14 87.72 43.02 93.05 15.

11 86.32 48.73 1.71 33.04 38.25 59.13 31.59 59.83 82.82 14.91 48.95 37.04 8.31 13.32 50.16 6.79 36.88 2.01 44.93 65.46 38.99 41.94 5.20 8.25 66.34 53.42 90.58 OSCB 5.98 6.75 12.59 5.19 19.48 63.93 2.05 1985 1990 1992 1995 1998 2000 2004 2005 1985-05 1985-91 1992-05 1992-98 1999-05 Interest Expended SBI NB FB AB Interest on Deposits SBI NB FB AB Interest on Borrowings SBI NB FB OSCB AB Operating Expenses SBI NB FB 64.97 2.22 2.65 11.34 41.69 13.16 22.64 52.74 62.85 41.80 61.94 8.85 55.87 68.11 1.62 59.30 9.01 20.62 45.44 2.17 43.61 90.71 59.01 30.63 60.27 88.62 20.97 2.96 23.73 22.77 90.37 28.96 59.27 2.85 34.83 65.28 27.67 64.99 51.65 39.84 30.31 9.35 1.80 31.43 8.96 11.17 89.87 11.23 AB Income on Advances SBI NB FB AB Income on Investments SBI NB FB OSCB AB Non interest Income SBI NB FB AB Commission.61 48.92 6.93 60.22 28.88 OSCB 91.73 10.86 12.92 42.17 17.44 5.92 70.25 22.42 26.57 29.05 16.58 36.95 25.97 53.29 56.14 62.89 3.02 56.43 16.39 36.53 36.10 12.99 46.77 63.05 24.03 5.11 13.49 69.78 41.95 42.58 43.43 5.68 .66 38.78 6.09 60.89 23.14 62.63 26.95 25.54 24.08 68.67 21.17 11.86 31.05 27.04 80.54 16.07 17.52 68.60 11.50 6.42 42. Exchange and Brokerage SBI NB FB 91.69 64.92 30.67 34.43 54.29 10.26 44.01 2.77 61.63 71.14 13.99 48.77 11.32 57.03 62.76 26.34 14.16 6.61 45.12 2.77 42.14 62.09 12.93 27.36 55.44 15.27 33.12 41.05 53.77 90.19 21.59 59.86 22.26 47.30 4.09 15.32 44.69 7.52 90.46 51.83 10.58 31.20 6.38 83.67 3.52 42.24 78.64 91.87 68.30 47.96 66.60 18.29 66.89 3.26 OSCB 8.54 8.42 83.18 59.89 11.00 4.63 53.77 52.49 2.88 34.24 48.23 65.98 40.44 93.90 55.04 1.74 11.62 54.16 37.35 45.36 85.21 7.23 53.66 6.52 6.97 6.42 7.53 26.40 49.72 30.49 54.14 14.18 31.11 11.91 59.42 55.88 22.16 53.63 55.15 9.61 90.93 60.19 53.80 51.53 29.22 85.85 34.74 10.29 48.28 6.64 19.50 40.69 57.61 56.90 62.81 29.25 26.93 26.64 10.02 31.20 14.28 39.90 87.80 39.47 34.03 OSCB 61.65 83.26 38.90 AB 8.14 62.55 OSCB 61.24 90.32 35.05 6.05 21.80 56.43 87.34 26.20 11.18 1.34 37.36 3.39 44.06 36.84 51.40 48.39 25.64 48.69 11.10 10.51 13.15 22.26 10.34 64.14 53.67 1.89 86.96 12.15 59.78 8.08 56.59 26.76 21.80 18.75 11.31 92.90 42.28 22.61 59.54 2.12 35.01 64.43 16.81 2.62 18.12 2.90 61.80 36.37 15.96 51.39 9.65 40.52 27.53 41.38 19.24 51.71 28.38 85.39 63.70 6.06 43.65 25.81 84.43 26.79 12.31 35.84 9.39 33.26 1.69 8.15 9.03 15.85 77.18 7.04 42.91 38.51 58.95 91.96 66.63 10.76 88.41 90.41 26.42 12.40 33.46 8.87 6.89 49.64 5.76 84.19 16.07 41.49 69.19 27.52 9.42 66.64 55.69 3.01 27.92 70.38 11.70 64.64 9.30 35.64 81.54 59.76 9.05 40.23 11.91 61.22 49.12 44.95 56.07 57.83 57.72 14.42 2.10 6.57 4.24 1.34 53.35 85.56 14.15 4.19 6.05 12.82 59.21 60.58 16.17 35.59 9.96 27.35 55.58 5.67 36.29 37.96 5.16 14.98 48.11 10.95 83.93 49.15 52.55 31.03 63.84 68.89 26.09 12.50 7.13 7.08 29.49 55.29 5.57 57.91 29.96 3.66 7.65 52.69 64.99 33.31 61.79 42.13 58.75 47.61 58.21 5.05 48.84 68.47 56.44 38.96 19.21 40.21 87.13 12.16 64.49 86.82 25.81 25.78 14.03 17.74 58.88 50.37 12.50 19.61 32.80 35.36 11.80 2.86 34.34 3.71 38.84 39.41 42.67 3.20 58.31 0.19 38.80 29.63 71.62 16.80 2.37 13.62 16.36 8.OSCB 91.58 37.64 42.01 8.44 0.58 9.64 14.57 8.91 63.79 2.52 68.34 88.58 24.28 27.17 54.31 29.60 69.24 11.57 53.42 90.39 26.61 26.71 9.71 39.

40 25.81 15.81 16.28 AB Payments To Empl.68 10.53 26.06A. To know.35 25.50 7. whereby banks make loans that are funded by deposit is showing the declining trend.05 15.07 A Ratios of Income and Expenditure of Indian Commercial Banks ANALYSIS & INTERPRETATION Income and Expenditure: Structure and Growth of Indian Commercial Banks.10 11.31 25.75 19.82 22.48 20.95 27.17 18.57 10.09 23.96 14.06 18.49 14.10 20.69 27.34 15.08 7.47 21.93 19.05 11.11 30.22 15. Interest Income The principal source of bank revenue is the interest income generated by the bank’s earning assets comprising of loans and investments.34 13.91 18.07 19.20 12.93 14.70 16.09 18.33 10.21 11.48 23.36 25. Presently banks are entering into non-traditional sources of funding of the resources and diversifying their activities into different areas. Usually a close association exists between size of the principal items on banks balance sheet and its income statement.87 23.27 19.10 16.55 24.06 30.36 20.97 26.30 10.25 12.01 18.79 26.39 10.08 29.82 18.57 14.39 23.84 9.05 20.26 22.20 24.40 20. Table 3.86 16.28 9. .19 9.42 18.21 18.02 8.04 15. with the liberalisation of financial system.32 11. traditional financial intermediation role of banking.52 12.52 20. The income statement is also a major source of information of bank’s business orientation as well as the sources of a bank’s earnings and their quantity along with its expenditure.71 14.79 18.66 9.06.46 21.07A.33 20.73 14.37 19.05 19. This trend is considered the outcome of competitive environment.37 12. In India interest income has been a major source of earning for all SCBs.73 18.14 12.12 26.98 7.11 22.52 14.80 33.07 37.68 12.60 18.37 25.11 14.99 27.62 10.77 15.27 9. and discussed as given below.83 19. how Indian banks are responding to newly deregulated environment.83 14. A bank’s income statement indicates the amount of revenue received and expenses incurred over a specified period. In recent years all over the world and also in India.11 15.36 8.49 25.58 25.20 Table 3.90 11.20 15.30 17.33 OSCB 27.04 14.59 19.20 29.35 8.49 14.15 13.29 18.08 22.63 21.71 12.52 8.18 19.84 8.75 17.66 11.87 20. the structure and growth of major components of income statements of Indian commercial banks is presented in Table 3.OSCB 29.96 23.49 9. It is also an indication of the performance of the balance sheet of a bank in existing environment. The interest received on bank deposits kept with other financial intermediaries is also part of it.18 5.90 20.08 23.50 19.07 and Table 3.13 26.56 24.99 29.& Provision SBI NB FB AB Provision & Contingencies SBI NB FB OSCB AB 33.59 19.61 11.15 8.22 22.26 17.08 16. Table 3.17 14.28 18.

it has been showing the sign of decline and share in total income had decreased from 85. It shows that the growth of interest income had decreased significantly during liberalisation period and it had become 13.interest income accrued from advances and from investment.61% in 1992-05 compared to 23.08% in 1985-91. exchange and . This trend in growth rate was also reflected in the share of non-interest income which increased to 14.03% during post financial liberalisation period implying the allocation of the assets by all SCBs to marketable financial assets which serve the purpose liquidity and returns both.06. It is observed that income earned in the form of commission.2 Non Interest Income Income earned through sources other than earnings from loans and investments is accounted under non-interest income and usually includes fees earned from providing fiduciary services.Its average share in total income had remained more than 75% for the period 1985-05.78% in relation of 90. Similarly. This trend was visible for economic liberalisation era (1991-05) where on the average its share became 85. However in recent years. compared to 14. major part of investment in government securities by the banks indicates that they are interested in deploying their funds in safe investment rather than advances and loans where more risk is involved. 3. This decline in interest income has become more pronounced in the post-financial liberalisation period with its share reduced to 84.1% which is more than 10% of the average growth of total income (11. The sustainability of this trend is also revealed from the growth of interest income as shown in Table 3. The trend of non-interest income in case of Indian scheduled banks showed the movement towards diversification of activities.88% during 1992-05. As shown in the Table 3. In banking sector interest income generated through investment had recorded for rising trend for the period 1992-05.27% average growth in total income for the same period.30%.24% in the period 1985-91. Besides. Interest income is further divided into its sources.20% during 1992-98 to 37. Recently in bank management.43% in 2005 compared to 91. non-interest income is targeted as a key source of future income.06 the noninterest income registered the average growth rate of 18.4. during the post-financial liberalistion period. the non-interest income of all SCBs had increased by 21. commission. With liberalisation and softening of interest rates banks are finding it difficult to earn steady income from interest income.42% in 1985. The average share of investment income in total income had increased from 31.08%).52% of the total income in the period 1992-05 in relation to 9. Interest income derived from advances is continuously decreasing in case of India. exchange and brokerage etc.76% in preliberalisation period 1985-91.

64% in the period 1992-98. All SCBs exhibited maximum increase in interest expenditure in pre-liberalization period with average growth rate of 24.3. Therefore it decreased to 6.96% in the preliberalisation period. legal charges and expenses related to the running and maintenance of bank’s computer and information technology system etc. status of interest income and non-interest income showed that private banks and foreign banks are more dependent on non-interest income in comparison to public sector banks.3 Interest Expenses It forms the largest expense for most of the commercial banks.34% of total income during 1985-91 to 7. This expenditure registered further deceleratation during post financial liberalisation period and reported average growth rate of 6. This decline in growth rate was also reflected in the share of interest expenditure in relation to total expenditure which reduced to 49. It indicates that private banks and foreign banks are more capable in diversification of their funds. In case of India .36% in 1992 to 1. The fall in the interest expenses across all categories of banks was in tandem with fall in the interest rates across the board and the introduction of floating rate deposits by RBI.49% and 69.74% in 2005 from 66.88% during the post-financial liberalisation period.48% growth in post-liberalisation period.80% in 2005. advertisement. It resulted into fall in share of interest on deposits in total expenditure from 66.49% in 1985 and 69.12% compared to 68. taxes and lighting.91% in 1992 to 40. Group-wise. Among bank group. 3.32% in 2005. In case of post liberalisation period.22%. on an average deposit expenses shrank to 53.91 in 1985 and 1990 respectively. The private banks in particular are showing relatively higher growth in the non-interest income during post-liberalisation period.4 Operating Expenses Operating expenses comprise wage expenses and non-wage expenses such as rent.42% against the 12.4. foreign banks witnessed the maximum decline in both growth rate and share of interest expenditure followed by other bank groups. The interest expenses of all SCBs reported average growth of 15. The operating expenses are also called cost of intermediation and it is the major item focused by bank management for cost control. 3. Similar trend is observed for interest on borrowing for all SCBs and its share decreases from 9.27% during 1985-05. It comprises interest paid on deposits and borrowings and is the aggregation of interest paid on interest bearing liabilities.brokerage that formed major portion of non-interest of banks declined from average share of 8.

83% during postliberalization period against the average share 30. The major chunk of operating expenses came from wage bills and provisions for employees. This reflects that the Indian banks had been able to contain their operating expenses in new economic environment.83% and 16. losses due to change in market value of assets etc. The impaired loans are also termed as non-performing assets. respectively.37% growth rate during 1985-05 and it reduced and recorded an average growth rate of 13. major portion of provision are made to compensate the loan losses. 3.07A it is clear that all the bank groups and public banks in particular registered sharp increases in provisions and both in percentage term and also as ratio to total expenses. the share of operating expenses and wage bills in relation to total expenditure decreased to average share of 25.5 Provision for Loss and Contingencies The major items on provision and contingencies consist of provision for loan losses.08% in preliberalization period. when the growth in operating expenses had reached to an average growth rate of 11.3. without exposing it to higher level of risks. All groups of banks except foreign banks had registered a significant decline in wage bill growth in post liberalization period and in recent years during post financial liberalization period this growth rate is reduced to single digit for all groups of banks except private banks. Loan loss includes the impaired value of the loan provision and interest due. provision for depreciation in value of investment and provision for taxes. From Table 3.29% in the pre-liberalization period. As per the guidelines of RBI.12% per annum. The government of India has undertaken numbers of reform in the banking sector since early 1990 for introducing the efficiency and enhancing the productivity of the banks. and in aggregate the item of provision and contingencies constitute more than 10% of total expenses.96% and 21. 3. Consequent of decrease in growth of expenditure.06A and 3. The decrease in the growth was more pronounced during 1999-05.4 Financial Performance of Scheduled Commercial Banks in India A commercial bank is viewed as efficient when it has been able to meet its objectives in competing environment and offering competing services at relatively lower prices. .91% in post-liberalization period against 20. In case of Indian banking sector. presently every commercial bank is required to make provision to compensate the loss due to non-performing assets.the operating expenditure of all SCBs had increased with 15.

3. The period of the study is divided into two sub periods for the purpose of analysis. In the post liberalisation period.1 Intermediation Cost The cutting of cost is the immediate strategy the banks adopt in competitive environment for maintaining their profitability levels. The financial performance measures based on ratio analysis require benchmarks to understand the comparative performance of banks.08B. The sub period 1996-05 include all the sampled sixtythree banks. The sub period 1985-95 includes the public sector banks only and other sector banks are excluded from this period due to non availability of data on the income and expenses statements for the period 1985-91.As the present study is focussed on bank’s productivity and efficiency. the present financial reforms also encourage the banks to reduce their non-interest expenses especially salaries. all the SCBs at aggregate level are able to contain the intermediation cost and average intermediate cost in terms of total assets was hovering around 2. Besides. The initial cost arises from mobilising funds and subsequently allocation of these funds in different assets is called intermediate cost. provide the results of financial performance of 63 sampled scheduled commercial banks of India. The result of this . Table 3. the bank management focuses on reducing operating expenses and increasing the productivity of their employees through use of automated equipment and improved employee training.4. the competitiveness environment in banking sector has forced the commercial banks to adopt the cost cutting methods to reduce the operating expenses.08A and 3. other employer’s benefits and overhead costs. we have taken the sample of sixtythree schedule commercial banks which remained in existence during the period 1996-05. To examine the performance of banks at individual level. present the results of the aggregate performance of commercial banks along with group performance and the Table 3.08. These banks include all the public sector banks which have been in business in the period 1985-05. we selected only those financial ratios for measure of financial performance of the banks which are related to profitability and efficiency. In competitive environment for greater efficiency in their operation. To identify the benchmark we have considered the period of 1996-05 as representative of Indian banking sector and accordingly we have used the quartile figure of average of financial ratios of sixty-three banks for the period 1996-05 to get the representative benchmark for analysing the performance of commercial banks in India.50% during the period 1985-05. In case of India.09 to Table 3.09. It is also known as operating expenses. 3.

During 1996-98. the wage bills which are the major proportion of intermediation cost showed large divergence among the bank groups. The major components of intermediation cost are wages and salaries that constitute more than 60% share in major groups of banking sector.668% and in the period 1999-05. the majority of public sector banks suffered from higher intermediation cost 81% of these banks had reported it more than 2. fail to reduce its wage bills less than 62. the other inefficiencies also got enveloped in this process.941%. 67% public banks had shown the operating expenses in relation to total assets more than 3. the share of 65% banks was above 2. this position reversed and the 65% of banks were observed for share less than 2.668% of operating expenses. After nationalisation and before the liberalisation of the Indian economy. The public sector banks had been struggling to reduce the wage bills indicating overstaffing had reported its average share of more than 70% of intermediation cost for the period 1992-05. The high proportion of operating expenses in case of public banks might be also due to spreadness of their branches in remote areas. However. If we leave one to three public banks. If we compare the operating expenses of banks before and after the financial liberalisation the majority of banks of all groups have been able to contain this expenditure. Among bank groups more technology intensive private and foreign banks had exhibited a substantial lower proportion of wage bills during post financial liberalisation period. At individual level (Table-3.09% of operating expenses.measure is also reflected in the form of substantial decline in intermediation cost across all categories of banks. One of the factors said to be responsible for this higher figure is expenditure incurred by public banks on expansion of their branches in the remote areas to meet the social objectives. . This decline was more evident in private banks despite their entry into retail banking and it may be the outcome of their aggressive introduction to information technology and recruiting only trained manpower. In relation to total assets.09).527%. It may be noted that all the sampled six new private sector banks recorded for share of wages and salaries less than 37.09% during the period 1985-05. It was noticed highest in the case of nationalised banks and no public banks were able to reduce its share below 37. Thus as a group the private banks and foreign banks were better managed to control their operating expenses. This component had showed decline in its share of intermediation cost from average share of 68.668% of total assets for the period 1985-05. On the other had majority of private banks and of foreign banks had shown their share below 62. the remaining all public banks including SBI group.527% reflecting the impact of computerisation of their branches along with their concentration in urban areas.02% during 1985-91 to 65.20% in the period 1992-05.

Here it is to be noted that this lower figure was not the result competitive environment.56%. all the public sector banks reported the earning ratio below 79.2 Earnable Assets The ratio of earning assets in proportion to total assets indicates the allocation of funds by commercial banks in revenue generating activities.In case of other banks. This ratio also reflects the allocative efficiency of banks since it derives a wedge between interest paid to the depositors and the interest charged to borrowers on their loans. during preliberalisation. It also shows the capability of the banks to earn. The relative position of earning assets of commercial banks during the pre and post liberalisation period indicates that the competitive pressure is forcing the banks to deploy their funds in more earnable assets resulting this ratio to increase from 68.3.7%.54% in the period 1992-98. the commercial banks on the average experienced a lower net interest income having meagre figure of 1.34% in 2005 against 68.3 Net Interest Income Net interest income is the one of the most important indicator of efficiency of banks and computed by dividing the excess of interest income over interest expense by total assets. the commercial banks has now more options to park their assets.69% in the period 1992-05.11% against 74.80%. during this period. majority of private banks had exhibited higher earning asset ratio in the period of post financial liberalisation period in comparison to foreign banks. This ratio has increased to 86. 3.28% during 1985-91 to 77.699% for the period 1985-91 and in the period of economic liberalisation (1992-05) the percentage of public banks below this ratio reduced to 73. Among bank groups. rather it was the outcome of higher cost of administrative interest rate on . which reflects the improved health of the banks. The foreign banks recorded highest improvement followed by the private banks and public banks.97% in 1985 for all commercial banks. with the decontrolling of interest rate. This trend was observed across all the group of banks.4. the nationalised banks had reported the maximum improvement in this ratio during the period 1999-05 with average figure of 81. During the post financial liberalisation period. This ratio shows the further significant improvement for the public sector banks in the period of post financial liberalisation when nineteen banks of this group were bracketed for earning ratio than 80. At individual level (Table 3. entry norms and investment avenues. In case of India.054%.4.11). It is also reflected in their earning assets ratio which increased substantially during this period and touched the average ratio of 80.

the competition among banks has hot up and in this process they are forced to cut the lending rates which is also resulted in the fall in interest income and ultimately fall in the net interest margin to 2. The yield on earning assets registered improvement with ratio of 11.1223% net interest margin. most of public sector banks were registered for lowered spread and in post liberalisation period. But during the post financial liberalisation period. the foreign sector banks have recorded the highest net interest margin. 3. the net interest income has improved on the average and recorded as 2. The falling net interest income in recent years.78% in the period . which has to mobilise the funds at higher costs in relation to other banks and all the six sampled new private banks were observed for net interest margin less than 3.46% in pre-liberalisation period. 67% SCBs have recorded the net interest income ratio less than 3. The cost of funds moved in opposite direction and reduced marginally to 6. the position marginally improved with 11 public banks are observed for more than 3. This effect is more substantial in case of private banks. This improved spread is the outcome of fall in the cost of funds due to the softer rate of interest and improved earning assets ratio of the banks and relatively higher returns on lended funds which are sticky downwards.223%. in the age of softer interest rate. is the strongest evidence that competition in Indian banking sector has become reality.30% on the average for all SCBs against 7. Across different banking groups.4. in the sample of 63 banks has shown divergent performance.87% for all commercial banks. during the post financial liberalisation period 1999-05.deposits and accompanied by lower ratio of earning assets. The above difference along with improved earning assets ratio leads to the improvement in the spread of the banks. In India. with the deregulation of interest rates and along with other decontrol on banking activities. assets utilisation ratios have improved significantly after liberalisation and it becomes 10. within this group. in the period falling before 1992. At individual level.64% against 6. In recent years. may be due to their access to funds of lower cost.4 Asset Utilization Another ratio which is used for measuring the performance of bank is the asset utilization. It is a productivity measure focusing on the firm’s ability to generate revenue compared to the asset base on which revenue can be earned.223% against 31% in the period 1996-98 reflecting the effect of competitiveness on the individual banks performance.75 for the above periods. In the post liberalisation period 1992-05.81% despite the fall in the cost of funds.44 for all SCBs during post liberalisation period against 10.

1985-05. The total income has two major components interest income and noninterest income. The interest income which includes more than 80% of total income has increased from on the average of 7.13% of total assets in preliberalisation period to 8.82% in post liberalisation period. The major growth in this component of income derived during the period 1992-98 when it touched to 9.41% on the average for all SCBs. The return on advances and investment which are main sources of interest income observed similar the trend. After 1991 the financial reforms led to the diversification of bank’s portfolio and business activities. It is evident from the rising share of non-interest income which has become on the average 1.45% of total assets during 1992-05, against 0.73% in pre-liberalisation period. During the post-financial liberalisation period which is also characterized by softer interest rate regime, the interest income of SCBs declined but the asset utilisation ratio remained stable due to increase to touch the share of other income which increased up to on the average figure of 1.53% of total assets during 1998-05 against 1.37% in 1992-98. At individual level, the public sector banks had shown significant increase in asset utilisation during the post economic liberalisation period and 25.7% banks of public sector banks are observed for more than 11.438% ratio against 7.4% banks of the group in the pre liberlisation period for the same ratio. Majority of private sector banks had emerged as more capable in utilising their resources with the reporting of highest asset utilisation ratio for all the sub period covering 1996-05, whereas the national banks were observed for the opposite side. For interest income ratio and non interest income ratio we found similar behaviour. It is noted that in the recent years the private banks were able to generate more non interest income in relation to other banks so stabilising their total income. 3.4.5 Financial Efficiency Another measure of efficiency is efficiency ratio computed by taking the ratio of non-interest expense to the sum of net interest income and non-interest income. This ratio is considered as the most popular ratio to evaluate a bank’s performance in the past because it reflects both on as well as off the balance sheet operations. Smaller value of efficiency ratio denotes greater efficiency, which is often assumed to be desirable because a given level of services is being provided at lower cost (supply side efficiencies) or because the services are of higher quality and therefore, command a higher price in the market place (demand side efficiencies). Table 3.16 reports the ratios of banking sector for the period 1985-05. During this period, the average efficiency of SCBs was

computed as 69.68% and in the economic liberalisation period, SCBs experienced the improved efficiency level with average 59% against 94.34% in the pre-liberalisation (1985-91). This level is further improved in the era of post-financial liberalisation with the value of 55.10%. Several reasons can be mentioned to explain this trend in efficiency. Firstly Indian commercial banks were able to contain the operating expenses in spite of huge spending on the computerisation in the banking sector. Secondly, due to better product mix in the liberalisation period, as evidenced by the increase in the share of other income.These reasons may be supported by the facts of falling of burden ratio in Indian banking sector. This ratio on the average decreased to 0.83% in the period 1999-05 from 1.35% for 1992-098. Among bank groups, the foreign banks and private banks outperformed other banks on the basis of efficiency criteria. The foreign banks have advantage of access to funds at lower cost along with a significant portion of non-interest income. The private banks are more efficient in cutting their operating expenses and have employed information technology for the purpose. Table 3.16 exhibits the individual performance of banks in the form of efficiency measure. The public banks average efficiency for the periods 198505, 1985-91 remained above 56.50%. In the liberalisation period, 30% public sector banks registered for improved efficiency score and achieved the value less than 56.50%. In case of all the sampled 63 banks, 64% banks have recorded efficiency score of less than 456.50% in post-financial liberalisation period against 53% banks in 1996-98. The efficiency of foreign banks reduced during 1999-05, which may be due to falling net interest income and increase in overhead cost in post-liberalisation period. 3.4.6 Return on Assets Return on assets reflects the efficiency with which banks deploy their assets. It means how bank resources are being used to generate net income. The ROA shows significant improvement in Indian commercial banks and it increased from the level of 0.09% in 1985 to 1.13% and 1.15% in 2004 and 2005 respectively. The shift in ROA is notable during the post-liberalisation period when it increased on the average to 0.47% in the period 1992-05 in comparison to 0.14% in the pre-liberalisation period 1985-91. Thus the financial reforms resulted in the improvement in the ROA. These reforms focused on improving the operational environment of banking sectors. During the period 1992-98, the ROA of SCBs declined significantly in comparison to 1999-05, caused by making provisions for NPA under the guidelines of BASEL Committee Report. Among bank group, the foreign banks outperformed other banks in extracting

returns on their assets reflecting their superior management approach in existing operational environment. With offloading of non-performing assets, public sector banks have registered a significant improvement in ROA. Particularly in case of nationalised banks ROA increased up to 0.84% in the period 1999-05, against -0.38% in 1992-98. The individual performance of banks on the basis of ROA is depicted in Table 3.17 It shows that after liberalisation majority of commercial banks from across the all groups, are moving towards high rate returns as is evident from the results that 61% banks recorded ROA more than 0.844% in 1999-05, against 49% for the same figure in 1996-98. 3.4.7 Equity Base The equity base of the commercial banks is one of the determinants of soundness of bank’s balance sheet. It shows a significant improvement in SCBs over the period, and increased to 6.26% in 2005 from 1.33% in 1985 and 1.68% in 1990, which reflect the risk bearing capacity of the banks. The CRAR of SCBs has shown significant improvement and in recent years all banks on the average has more than 12% of CRAR. The foreign bank has highest capital adequacy ratio with more than 41% CRAR on the average for the period 199805. 3.4.8 Other Performance Measures Another parameter of the soundness of banking institution is the asset quality of assets which is measured by the level of NPA. With offloading of past legacy GNPA of past loans and introduction of better appraisal and screening mechanism of financing the credit, the public sector has recorded significant in NPA ratio and it reduced to 5.51% in 1999-05 in comparison to 8.83% in 199298, and the respective figure for nationalised banks are recorded as 6.33% against 9.81%.Business per employees had shown tremendous increase during the post liberalisation period in all the categories of banks in relation to its performance in pre liberalisation period.

49 12.31 15.6 199905 7.24 27.21 9.12 36.09 36.31 21.4 14.83 11.31 23.77 13.82 NB 14.31 21.26 9.19 OSCB 26.56 .41 199905 9.54 2.46 13.14 10.7 198591 22.42 Interest/discount on advances/bills SBI NB 19852005 9.16 19.25 16.3 9.08 199298 9.33 FB 18.36 10.61 199298 11.52 8.24 198591 22.98 AB 16.09 19922005 8.08 19922005 12.Interest Earned SBI 19852005 15.

79 NB 15.4 Interest on SBI balances with RBI NB 19922005 8.11 16.71 21.2 199298 21.08 11.48 12.13 36.25 10.96 17.02 OSCB 30.31 26.66 Income on Investments 19922005 SBI 17.75 0.06 20.44 8.44 23.08 .65 -6.61 FB 12.14 39.89 38.13 OSCB 22.FB 14.87 199298 -7.3 199905 13.21 AB 17.07 199905 9.98 1.94 23.11 10.44 15.64 10.38 AB 11.56 15.74 3.54 -0.

75 28.81 199905 17.12 10.26 21.49 31.02 OSCB 34.68 13.05 18.88 33.56 18. exchange and brokerage 19852005 SBI 14.59 AB 22.76 0.52 11.08 33.47 35.08 198591 19.88 199298 16.09 15.75 30.08 15.47 FB 17.09 -1.and other interbank funds FB 4.56 -6.65 21.06 18.1 Commission.04 17.38 21.81 7.09 24.88 36.75 NB 20.2 27 19922005 15.05 .05 36.52 15.15 0.71 198591 19.57 0.88 OSCB 28.52 AB 15.07 24.43 Other income 19852005 SBI 18.37 10.96 17.07 11.36 49.16 19922005 11.96 23.16 NB 12.73 OSCB 16.96 199905 6.74 AB 6.56 19.99 13.51 24.48 FB 23.32 199298 16.

36 13.22 .73 -4.48 13.08 198591 22.98 OSCB 27.02 24.57 AB 15.09 37.Total Income 19852005 SBI 16.7 17.79 14.48 199298 11.93 21.63 13.44 19922005 12.98 28.18 OSCB 28.17 16.95 199905 10.03 FB 16.18 15.58 11.76 9.91 10.42 11.03 AB 17.14 NB 14.76 23.82 11.08 Interest Expended 19852005 SBI 14.27 198591 23.86 FB 19.43 199905 6.76 41.42 19922005 11.65 6.95 14.97 12.58 16.11 4.27 199298 12.41 12.01 21.63 36.26 4.7 28.5 NB 13.56 7.29 22.93 40.

77 4.62 10.62 AB 14.36 15.99 199905 -11.33 199298 -11.7 8.08 9.5 40.7 17.5 198591 23.28 -13.14 Interest on RBI/inter-bank borrowings 19922005 SBI -7.84 0.57 12.03 FB 8.76 41.Interest on deposits 19852005 SBI 14.35 OSCB 25.58 -6.29 22.04 13.2 38.05 -6.27 -0.42 FB 14.86 199298 14.71 2.13 12.42 19922005 13.36 26.91 199905 6.51 21.02 24.38 0.67 NB -3.51 1.9 OSCB 24.37 AB 2.46 .33 NB 12.

proportion of non. So the banks should control these. . Earnable asset ratio shows the capability of the banks to earn. Due to this banking growth has reached to this point. Other banks should also follow their policy. If they start more involved in these services banks will grow more. As Foreign banks have shown more growth other banks should follow their footprints or take some new steps to improve this. 6. 5. Foreign banks have recorded reduction in wage bills and other operating expenses that has been result in their high growth. This has been increased. So banks may follow the same policy regarding it. That is a good sign. 3. A good portion of banks expenses is on interest expense. as evidenced by the increase in the share of other income. Indian commercial banks were able to contain the operating expenses in spite of huge spending on the computerization in the banking sector.interest income has been increased the banks must enter into other new fields. As the business earning from non interest income is decreasing. As the income proportion of interest income has been decreased and the 2. These reasons may be supported by the facts of falling of burden ratio in Indian banking sector. Due to better product mix in the liberalisation period.SUGGESTIONS 1. It should be increased further. Banks should spend more on other services to let them grow. Banks must take steps so that NPA’s could be reduced. As the all sectors have increased the provision for loan losses this is a bad outcome. Banks should provide loan after deeply checking the creditability of person. 4.

The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits & 60% of advances. Only the foreign and few private banks haven’t touched rural grounds. And economy depends vastly on various developing industries of the country. In terms of quality of assets and capital adequacy. The banking sector in India is growing at a faster pace to match the growth of the Indian economy. . Banking in India today is doing fairly well in its services. Indian banks are said to have transparent functioning and brilliant records of the balance sheets relative to other banks in comparable economies in its region. The nationalized banks in their umbrella also include the co-operative banks focusing on the areas of agriculture. Industry estimates indicate that out of 274 commercial banks operating in India. The rating agency ICRS Ltd.CONCLUSION Every country’s growth depends on the strength of her economy. The private sector banks include 24 foreign banks that have started their operations here. free trade. The opening up of our economy. extensive flow of foreign money and business and liberal policies have improved our economic condition exemplarily. 223 banks are in the public sector and 51 are in the private sector. which is growing by leaps and bounds. currently in India there are 88 schedule commercial banks out of which government has a stake in 28 public sector banks. They continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them of high deposits mobilization. The nationalized banks and cooperative are performing an exceptional job in the rural sections. There are 29 private banks and 31 foreign banks. the public sector banks have acquired a place of prominence. rural development. quality of work and reach. Indian Banking can be categorized into nationalized banks. The banking sector is the core contributor of any country’s economy. private banks &specialized banking institutions. They have a combined network of 53000 branches &17000 ATMs. Reserve Bank of India is the regulating body for all the banks in India. The Indian banking has shown tremendous growth. Since the nationalization of Indian banks in Indian banks in 1969. etc. Note that the public sector banks hold over 75% of total assets of the banking industry with the private & foreign banks holdings 18.5% respectively.2% & 6. which was once only a sleepy business.

we see a significant change in this direction. At the start of the 3rd quarter of the financial year. With the growth in the Indian economy expected to be strong for quite some time – especially in its services sector. . mortgage. the demand for banking services like the retail banking.5%. This sharp slow down of credit growth will require banks to cut the deposit costs to sustain profit growth. and investment services are expected to be strong. It is also expected that there will be cut in the deposit rates by 50 to 100 basis points across maturities. The Indian economy has recorded a robust growth for the 4th successive year during 2006-07 with the real GDP growth for touching 9. Banks have already goes ahead and reduced the interest rates on home loans and other retail assets.In the past few years.a. RBI in its Annual Policy Statement has placed the real GDP growth for 2007-08 at around 8. bank credit grew only 5% with just Rs. 96486 crores added to advances against Rs. Since April 2007.4%. 154000 crores a year earlier. This can also be an opportunity to restructure policies for a new vision based on faster and broader based growth. the RBI has evolved guidelines for greater financial gain to attain a sustainable growth rate of 10% GDP p.

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