A STUDY USING DUMMY VARIABLES ON

PUBLIC SECTOR BANKS

Rajneesh Karloopia
Department of Management

1. Introduction

In this study the net worth of banking companies are used with their reserve and
net profit margin. Net worth is the total assets minus total outside liabilities of an
individual or a company. For a company, this is called shareholders' preference and
may be referred to as book value. In simple words Net worth of a company
consists of Equity share capital, Preference share capital and Reserves & Surplus.
When total debt is added to Net worth, we get the Total liabilities. Reserve is most
commonly described as part of shareholders' equity, except for basic share capital.
Net profit margin or net profit ratio all refer to a measure of profitability. It is
calculated by finding the net profit as a percentage of the revenue. In this case
study we will analyses that whether there is any significant affect of increase of
reserve & surplus and Net profit margin on net worth or not. The industry of this
case study is public sector banks of India, where there are 24 listed companies. As
it is an important sector which shows it vital role in economic development.

2. Research Methodology
The regressed variable under study is the Net worth of the various companies; the
repressors are net profit margin and reserves & surplus of respective companies.
ANOVA models are used to access the statistical significance of the relationship
between quantitative regressed and qualitative repressor. They are often used to
compare the differences in the mean values of two or more groups or categories,
and are therefore more general than the t test which can be used to compare the
means of two groups or categories only.

The hypotheses to be tested are as under

 1. H0; there is significant effect of increase of reserves and surplus on Net
worth.
2. H0; there is significant effect of increase of net profit margin on Net worth.

The mathematical model for the study is as follows

Yi=β1 + β2D2i + β3D3i + Ui

Where,
Yi is the dependent or the regressed variable under study, in our case it is Net
worth of various companies.
β1 is the intercept.
β2 and β3 are the coefficients.
Ui is the error term.
D2i and D3i are the dummy variables under study.
In our case,
D2i = 1, if the reserve & surplus increases
0, otherwise.
D3i = 1, if the net profit margin increases
0, otherwise.
The mean Net worth when both reserves & surplus and net profit margin increases
E{ Yi|D2i=1,D3i=1}=β1+β2+β3
The mean Net worth when reserves & surplus increases and net profit margin
decreases
E{ Yi|D2i=1,D3i=0}=β1+β2
The mean Net worth when reserves & surplus decreases and net profit margin
increases
E{ Yi|D2i=0,D3i=1}=β1+β3
The mean Net worth when both reserves & surplus and net profit margin
decreases.
E{ Yi|D2i=0,D3i=0}=β1

3. DATA

S.N NAME OF NETWORT RESERV RESERV NPMRG NPMRG

o COMPANY H13 E13 E12 13 12
1 SBI 98883.68 98199.65 83280.16 10.39 9.68
2 BANK OF 23918.15 23321.51 19151.38 7.70 8.53
INDIA
3 PNB 32676.90 32323.43 27477.89 10.29 12.02
4 BOB 31969.44 31546.92 27064.47 11.54 15.12
5 CANARA 22689.96 20181.82 17498.46 9.76 15.65
BANK
6 IDBI 19427.92 16295.61 11686.25 7.99 8.76
7 UCO BANK 9682.42 7106.79 5631.60 3.49 7.20
8 UNION 17296.18 16588.39 12437.68 7.79 7.63
BANK
9 CENTRAL 15312.85 12651.27 8201.45 4.31 2.61
BANK
10 OBC 12775.54 12483.78 10793.24 6.85 6.80
11 SYNDICAT 10541.34 9939.39 7433.79 10.95 8.05
E BANK
12 ALLABAD 11352.52 10852.49 9146.58 6.29 11.24
BANK
13 INDIAN 11972.43 11142.66 8807.63 10.41 13.14
BANK
14 INDIAN 13457.36 12533.20 9989.40 2.50 5.41
OVERSEAS
15 ANDHRA 8441.18 7881.60 6919.81 9.23 11.06
BANK
16 CORPORATI 9565.69 9412.78 8127.80 8.46 10.43
ON BANK
17 BANK OF 6396.94 5147.46 3170.04 7.21 5.52
MAHA.
18 DENA 5764.01 5413.95 3941.45 8.48 11.01
BANK
19 SB B&J 4764.14 4694.14 4094.88 8.87 9.49
20 SB 4332.53 4285.73 4365.92 6.34 6.64
MYSORE
21 VIJAYA 5558.65 3863.11 3279.15 6.06 6.87
BANK
22 UNITED 5883.72 4709.01 3777.95 7.34 7.65
BANK
23 PUNJAB & 4604.10 4150.13 3085.23 4.37 6.61
SINDH
24 SB 4364.98 4314.98 3816.16 6.62 6.84
TRAVANCO
RE
*Source: - www.moneycontrol.com

*NETWORTH13 stands for Net worth in the year 2013 (in crore rupees).

*RESERVE13 stands for Reserves in the year 2013 (in crore rupees).

*RESERVE12 stands for Reserves in the year 2012 (in crore rupees).

*NPMRG13 stands for Net Profit Margin in the year 2013 (in %).

*NPMRG12 stands for Net Profit Margin in the year 2012 (in %).

4. Empirics
The results based on regression on the above mentioned data are as follows:
^
Yi = 4332.530 +9086.619D2 +17542.769D3
S eror= (18946.065) (19495.340) (9638.754)
T= 0.229 0.466 1.820
Sig= 0.821 0.646 0.084 R2=0.159

Diagram

x = β1

= β1+β2

= β1+β3

The mean Net worth when both reserve & surplus and net profit margin increases
E{ Yi|D2i=1,D3i=1}=β1+β2+β3=4332.530+9086.619+17542.769= 30961.918

The mean Net worth when reserve & surplus increases and net profit margin
decreases
E{ Yi|D2i=1,D3i=0}=β1+β2=4332.530+9086.619=13419.149
The mean Net worth when reserve & surplus decreases and net profit margin
increases
E{ Yi|D2i=0,D3i=1}=β1+β3=4332.530+17542.769= 21875.299

The mean Net worth when both reserve & surplus and net profit margin decreases.
E{ Yi|D2i=0,D3i=0}=β1=4332.530

5. Conclusion

From the analysis we conclude that the reserve & surplus and net profit ratio are
insignificant at 1% and 5% level of significance. That is these variables do not
effect net worth, there may be other variables which effect net worth of the public
sector banks in India for the financial year 2012-13.