Fundamental Analysis of Selected

Public and Private Sector Banks in India

Amanjot Kaur Sodhi
Simran Waraich

Abstract help them to take informed investment decisions.

Fundamental analysis studies the various financial,
economic and industrial parameters that influence the
risk-return of securities and helps in investment
decision making. Banking companies have a strong
shareholding foothold in the Indian economy and the
stock markets. Fundamental analysis can help the
shareholders by providing relevant information in
terms of profitability and growth which can, in turn,
With the help of fundamental analysis, investors can
track the past performance, recent changes and future
prospects of the banking sector. This research paper
analyses the fundamentals of selected banking
companies using independent financial parameters.
Keywords: Profit Margins, Return on Equity, Price
Earnings Ratio, Dividend per Share

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32 Volume XXVIII January-February 2016 Public and Private Sector Banks in India
Introduction
The development of any economy depends on the
development of the financial sector of that economy.
The Banking industry is the key component of the
financial system which provides financial assistance
not only to the industrial sector but also to the
agriculture and household sectors. Banks are the
credit creators. The Indian Banking industry has
contributed to the economic growth of the country.
This sector has undergone significant developments
and investments in the recent past. Reserve Bank of
India is the central bank of the country; it regulates the
banking industry in India and ensures monetary
stability in the economy. Banks are segregated into
different groups such as scheduled and unscheduled
commercial banks, public sector banks, private banks,
foreign banks and cooperative banks. The Banking
industry is a valuable contributor to the GDP, works
under a regulated environment and has government
support. Technological advancements have changed
the way banking is done. A wide network of financial
services increases the welfare and productivity in the
economy. It provides the opportunity to the public to
build savings, make investments, avail credit and
provides safety against income shocks and
emergencies.
However, the Indian Banking industry is facing
formidable challenges. Increasing competition,
increasing level of Non-performing Assets (NPAs) and
deteriorating asset quality have become major areas
of concern for the entire banking industry, and by
extension, the Indian economy. The vicious cycle of
economic slowdown, corporate earnings slowdown,
increase in NPAs, increase in the proportion of
restructured assets and depressed profitability of the
Banking sector, has led to a situation where banks,
particularly Public Sector Banks (PSBs), will be severely
ISSN: 0971-1023 | NMIMS Management Review
Volume XXVIII January-February 2016
challenged to raise the required capital to comply with
the Basel III requirements. For long, banks were
comfortable that competition would only come from
similar entities and that the Reserve Bank of India was
ensuring the least number of banks entered the
market to compete with them. But as it happens in any
business, technological innovation and the regulator's
delay in waking up to developments have allowed a
new set of companies to play the role of financial
intermediaries with a different name (The Economic
Times).
Banks can issue long term bonds, without maintaining
statutory reserves as per RBI's decision, to raise funds
for infrastructure and for affordable housing which will
enhance their ability to lend money, thereby enabling
them to mitigate the asset-liability mismatch. (Dun &
Bradstreet)
This paper deals with public sector and private sector
banks in India. Because of increasing competition in
the banking sector, private sector and foreign banks
are trying their best to improve their performance. So
there is a need to study the fundamentals and
efficiency of public sector banks.
Fundamental analysis will examine the key financial
ratios of banks and help in identifying the value of
stocks of these banks to identify investment
opportunities.
Review of Literature
Dr. Virender Koundal (2012) concludes that
commercial banks in India get favourable effects
because of the various reforms. Even though the
overall profitability has also improved, the major
benefit is taken by the private sector banks and foreign
banks whereas public sector banks are still lagging
Fundamental Analysis of Selected
Public and Private Sector Banks in India 33
 behind on various financial parameters.
Seema Malik (2014) has analyzed the effect of
technology on transformation of banking in India and
also studied the benefits and challenges of changing
banking trends. Technology and financial innovations
have led to tremendous improvement in banking
services and operations over the past decade. Survival,
growth and profitability of banks depend upon the
organizational effectiveness and operational efficiency
in today's competitive scenario where customers'
needs are changing everyday and technology is
touching new highs.
Sana Samreen (2014) has analyzed the overall banking
industry with the help of Porter's five forces model.
The study also concentrated on the various
developments, challenges and opportunities in the
banking industry. The author emphasized upon the
need to act both decisively and quickly to build an
enabling, rather than a limiting, banking sector in
India.
Malaya Ranjan Mohapatra, Avizeet Lenka, Subrat
Kumar Pradhan (2015) have analyzed the operational
efficiency of commercial banks in India and challenges
faced by public sector banks. The parameters
considered for study are labour productivity, branch
expansion and profitability ratios. The study concluded
that internal management and employee efficiency of
foreign banks are far better than other sectors of
commercial banks. Public sector banks are lagging
behind in various financial parameters.
Karan Walia (2012) has examined the impact of
reforms on credit deposit ratio, credit to GDP ratio,
investment in government securities, share of
business of public sector banks and proportion of
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34 Volume XXVIII January-February 2016
various types of advances. He also examined the
differences in various aspects of working results of
public sector and private sector banks in comparison
to foreign banks.
Nishit V. Davda (2012) has studied and examined the
economic performance and sustainability of six major
banks in the private banking sector - ICICI, HDFC,
AXIS, INDUSIND, ING VYSYA and KOTAK. The study
attempts to analyze the profitability position of the
sample banking companies for a period of 10 years
from 2002 to 2011. The study reveals that HDFC has
performed better in terms of Earning per Share than
ICICI, AXIS, KOTAK, INDUSIND BANK and ING VYSYA
during the last ten years i.e. 2002 to 2011. The study
also reveals that after KOTAK Bank, HDFC Bank has
performed better in terms of Net Profit margin than
the remaining banks. On the other hand, among all the
six banks, ICICI has achieved the highest yield in terms
of Return on Assets as compared to the remaining
selected banks.
Indian Brand Equity Foundation (2015) has studied
that Indian banks are focusing on adopting an
integrated approach to risk management. Banks have
already embraced the international banking
supervision accord of Basel II. According to RBI,
majority of the banks already meet with the capital
requirements of Basel III, which has a deadline of
March 31, 2019. Most of the banks have put in place
the framework for asset-liability match, credit and
derivatives risk management. As per their report,
rising incomes are expected to increase the need for
banking services in rural areas which will positively
affect the growth of the banking sector. The RBI has
relaxed its branch licensing policy which emphasized
the need to focus on spreading the reach of banking
services to the un-banked population of India.
Fundamental Analysis of Selected
Public and Private Sector Banks in India
Amit Kumar Dwivedi, D. Kumara Charyulu (2011)
determine the impact of various market and
regulatory initiatives on efficiency improvements of
Indian banks. They concluded that reform process has
shifted the focus, of public sector dominated banking
system, from social banking to a more efficient and
profit oriented industry. The infusion of private equity
capital has led to shareholders' challenges and
bureaucratic decision making. The emphasis in
banking has shifted from traditional banking to
technology based banking.
M. Vassiloglou and D. Giokas (1990) present a
systematic application of Data Environment Analysis
(DEA) carried out at the Commercial Bank of Greece in
assessing the relative efficiency of bank branches.
After a description of the model and the data, the
results of the analysis are discussed, and a note is
made of certain aspects of the follow-up analysis.
S. S. Rajan, K. L. N. Reddy and V. Pandit (2011) attempt
to examine technical efficiency and productivity
performance of Indian scheduled commercial banks,
for the period 1979-2008. They model a multiple
output/multiple input technology production frontier
using semi-parametric estimation methods.
Bhattacharya et. al (1997), in their study, examined
the productivity efficiency of 70 Indian commercial
banks during 1986 to 1991. Using Data Evolvement
Analysis (DEA), their study concludes that public
sector banks have been the most efficient followed by
the foreign and the private banks.
Sathye (2003), using DEA to estimate efficiency, found
that private banks are less efficient than public and
foreign banks.
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Volume XXVIII January-February 2016
Das and Ghose (2006) used non-parametric DEA to
estimate the efficiency of Indian commercial banks in
the post-reform period, 1992-2002.
Omprakash K. Gupta1, Yogesh Doshit and Aneesh
Chinubhai (2007) analyzed the performance of the
Indian banking sector in two stages. Non-parametric
frontier methodology DEA and TOBIT model have
been used to construct productive inputs. The outputs
are measured in monetary value and efficiency scores
have been determined for the period 1999-2003. The
study shows that private banks and other nationalized
banks follow State Bank of India in terms of efficiency
which is measured in terms of capital adequacy.
R. K. Uppal (2011) examined the efficiency of all the
bank groups in the post- banking sector reforms era for
the time period between 1999 and 2006. The main
implication of this study is that although public sector
banks have improved their financial position, they still
need to make many changes. On the basis of some
important parameters of efficiency, the paper
concludes that among the Indian banks, efficiency of
new private sector banks is quite high, but foreign
banks have an edge over new private sector banks.
Mariappan (2005-06) analyzed that the IT revolution
has brought a stunning change in the business
environment, with the maximum impact on the
banking and finance sector; as a result, the banking
sector sports a new look today.
Singla (2008) examined the profitability position of the
selected sixteen banks from the banker index for a
period of six years (2001-06). The study reveals that
the profitability position was reasonable during the
period of study when compared with the previous
years. Strong capital position and balance sheet place
Fundamental Analysis of Selected
Public and Private Sector Banks in India 35
 banks in a better position.
P. Hanumantha Rao & Sudhendu Dutta (2014)
attempted to study the fundamentals of the banking
sector in India. He considered operating profit margin,
net profit margin, return on equity, earnings per share,
price earnings ratio, dividend per share and dividend
payout ratio for a period of six years from 2006 to 2012
for three major banks.
Subbaroo (2007) concluded in his paper that the
Indian banking system has undergone a
t ra n s fo r m a t i o n f ro m d o m e s t i c b a n k i n g t o
international banking. Major trends that change the
banking industry world over are consolidation of
p l aye rs t h ro u g h m e rge rs a n d a c q u i s i t i o n s ,
globalization of players, development of new
technology, universal banking and human resource in
banking, profitability, rural banking and risk
management. Stringent prudential capital adequacy
norms under Basel I and II, and the free trade
agreements are big challenges before the banking
sector in India. The technological innovations in
banking pose another big challenge.
Objectives of the study
Fundamental analysis of public and private sector
banks in India has been done with the objective of
analyzing the profitability position of the selected
banks which is helpful in taking investment decisions.
Hypotheses of Study
H0 : There is no significant difference between the
selected variables of selected banks.
H1 : There is a significant difference between the
selected variables of selected banks.
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36 Volume XXVIII January-February 2016
Research Methodology
The present study attempts to evaluate the
performance of selected public and private sector
banks in India. It examines and compares the various
aspects of performance of selected public and private
sector banks in India. Secondary data has been used
for the purpose of this study. To analyze the
fundamentals of the top five banks, three in the public
sector and two in the private sector have been taken as
samples. State Bank of India, Bank of Baroda, Punjab
National Bank, HDFC and ICICI have been taken as
samples for the purpose of this study. The variables
which are considered for analyzing the profitability are
net profit margin, operating profit margin, return on
equity, earnings per share, dividend per share, price
earnings ratio and dividend payout ratio. The variables
are studied over a period of five years starting from
2010-11 to 2014-15. The Porter's Five Forces Model
has been used to analyze the banking industry.
The data has been collected from various sources such
as Statistical Tables relating to Banks in India, Trends
and Progress of Banks in India, RBI Monthly Bulletin
published by RBI, IBA Bulletins published by IBA, and
annual reports of banks. Following were the major
sources of data for this study:
1. Statistical Tables Relating to Banks in India for
various years published by the Reserve Bank of
India, Mumbai and moneycontrol.com.
2. Performance Highlights of Public Sector Banks,
Indian Banks' Association, Mumbai.
3. Annual Reports of the selected banks.
4. Various journals, bulletins, periodicals and
newspapers devoted to the subject of banking in
India.
Quantitative Techniques used for the Study
A research design is a plan according to which
Fundamental Analysis of Selected
Public and Private Sector Banks in India
observations are made and data is assembled. The Where = standard deviation,
present study is analytical in nature. Various statistical = Actual Mean of Series,
techniques have been used in the present study to X- = Deviations of the Items from the Mean,
provide analytical results of the data. The following N = Sample Size
methods have been used to analyze the data:
c) ANOVA - Analysis of variance (ANOVA) is a

A. Tabular Analysis - On the basis of the data/ technique to test for the significance of the difference

information collected from the various sources, between more than two sample means and to make

tabulation analysis is used to make the study more inferences about whether our samples are drawn from

meaningful. The use of tables is made whenever the populations having the same mean. The “analysis

needed and necessary for clarity of thought, and easy of variance” procedure or “F-test” is used in such

understanding. problems where we want to test for the significance of

the difference among more than two sample means.

B. Descriptive Analysis – Statistical methods such as The term one-factor analysis of variance refers to the

mean, standard deviation and one-way ANOVA were fact that a single variable or factor of interest is

worked out to study the nature and distribution of controlled and its effect on the elementary units is

different variables. All statistical calculations have observed. In other words, in one-way classification,

been made by the use of Microsoft Excel and Statistical the data is classified according to only one criterion.

Package for Social Science (SPSS) version 20. A brief The basic procedure is to derive two different

description of all the tools used and the formulae is estimates of population variance from the data, then

given as under: calculate a statistic from the ratio of these two

estimates ('between groups' and 'within groups'

a) Arithmetic Mean - Mean has been used to find the variance). The F ratio is the ratio of 'between-groups'

average of various items. The Arithmetic mean has variance to 'within-groups' variance. A significant F

been obtained by adding together all the observations value indicates that the population means are

and dividing the total by the number of observations. probably not equal. Before ANOVA was conducted, it

Suppose X1, X2, X3---------------------Xn are the values of was ensured that the necessary assumptions were

a variable X, then met. The two assumptions of concern were population

normality and homogeneity of variance.

Where: = Arithmetic Mean of a variable, ∑X =

summation of the values, N = total no. of observations
b) Standard Deviation - Standard deviation measures
the absolute dispersion or variability from the mean
values. A small standard deviation implies a high
degree of uniformity or homogeneity in the
distribution or vice versa. The equation for standard
deviation is:

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Volume XXVIII January-February 2016 Public and Private Sector Banks in India 37
 Table 1 - Operating Profit Margin (OPM)

SBI BOB PNB HDFC ICICI

2014-15 11.45 13.62 13.89 18.7 16.7

2013-14 10.92 13.28 16.56 17.28 15.26

2012-13 13.52 16.1 16.73 14.9 13.33

2011-12 17.11 18.31 18.4 15.57 10.16

2010-11 12.9 20.17 21.11 19.5 11.4

Average 13.18 16.296 17.338 17.19 13.37

S.D. 2.178 2.65931 2.37569 1.76027 2.40198

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Throughout the analysis process, significance tests Data Analysis

were used to decide whether to accept or reject the
hypotheses concerning the sample data that has been
collected. The confidence level was taken as 95% (or
5% level of significance).
Operating Profit Margin (OPM) - The operating profit
margin is a type of profitability ratio known as a margin
ratio. The information with which to calculate the
operating profit margin comes from a company's
income. Operating Profit Margin = Operating Income /
Sales Revenue

Table 2 - One Way ANOVA for OPM

Source of Variation SS df MS F P-value F crit

Between Groups 83.92042 4 20.98011 3.187037 0.035317 2.866081

Within Groups 131.659 20 6.58295

Total 215.5794 24

The operating profit margin gives the business owner a
lot of important information about the firm's
profitability, particularly with regard to cost control. It
shows how much cash is thrown off after most of the
expenses are met. Table 1 shows that the average
OPM of PNB is the highest among all the five banks,
followed by HDFC and Bank of Baroda. PNB is the most
efficient in controlling the cost of its operations. From
table 1, it can be clearly seen that OPM of Bank of
Baroda shows the highest degree of variability (highest
standard deviation of 2.65931).
H01: There is no significant difference between the
operating profit margin of SBI, BOB, PNB, HDFC and
ICICI Bank. As the calculated value 3.187037 is greater
than the critical value 2.866081402 at 5% level of
significance, the null hypothesis is rejected. Hence,
there is a significant difference between the operating
profit margin of SBI, BOB, PNB, HDFC and ICICI Bank.
Net Profit Margin (NPM) - The net profit margin, also
known as net margin, indicates how much net income
a company makes with total sales achieved. A higher

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38 Volume XXVIII January-February 2016 Public and Private Sector Banks in India
net profit margin means that a company is more deductions, such as sales allowances. The formula is:
efficient at converting sales into actual profit. The net Net Profit Margin = (Net profits / Net sales) x 100
sales part of the equation is gross sales minus all sales

Table 3 - Net Profit Margin (NPM)

SBI BOB PNB HDFC ICICI

2014-15 8.59 7.17 5.88 21.07 18.24

2013-14 7.03 10.46 6.99 17.28 17.96

2012-13 10.39 11.54 10.29 16.04 17.19

2011-12 9.68 16.87 13.4 15.88 15.75

2010-11 7.58 19.38 16.42 16.18 15.79

Average 8.654 13.084 10.596 17.29 16.986

S.D. 1.2539 4.43211 3.92731 1.95301 1.0508

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Table 4 - One Way ANOVA for NPM

Source of Variation SS df MS F P-value F crit

Between Groups 292.2393 4 73.05983 7.032067 0.001051 2.866081

Within Groups 207.7905 20 10.38952

Total 500.0298 24

From Table 3, it can be seen that HDFC has earned the Return on Equity (ROE) - Return on equity measures a
highest NPM of Rs 17.29 for every Rs.100 among all corporation's profitability by revealing how much
the five banks. HDFC is closely followed by ICICI. Bank profit a company generates with the money
of Baroda has the highest degree of variability in NPM shareholders have invested. ROE is expressed as a
with a standard deviation of 4.43211. percentage. Return on Equity = Net Income /
Shareholder's Equity
H02: There is no significant difference between the net
profit margin of SBI, BOB, PNB, HDFC and ICICI Bank.
As the calculated value 7.032067 is greater than the
critical value 2.866081 at 5% level of significance, the
null hypothesis is rejected. Hence, there is a significant
difference between the net profit margin of SBI, BOB,
PNB, HDFC and ICICI Bank.

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Volume XXVIII January-February 2016 Public and Private Sector Banks in India 39
 Table 5 - Return on Equity (ROE)

SBI BOB PNB HDFC ICICI

2014-15 10.62 9.21 8.48 19.37 14.55

2013-14 10.03 13.8 10.17 21.28 14.02

2012-13 15.43 15.68 16.48 20.34 13.1

2011-12 15.72 21.72 21.05 18.69 11.2

2010-11 12.62 24.3 24.45 16.75 9.66

Average 12.884 16.942 16.126 19.286 12.506

S.D. 2.36075 5.4446 6.12528 1.54146 1.82364

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Table 6 - One Way ANOVA for ROE

Source of Variation SS df MS F P-value F crit

Between Groups 163.0031 4 40.75078 2.078125 0.121779 2.866081

Within Groups 392.188 20 19.6094

Total 555.1911 24

The return on equity of the selected banks is shown in
Table 5. It can be clearly seen that HDFC Bank scores
highest in average ROE at 19.286% followed by Bank of
Baroda at 16.942% and Punjab National Bank at
16.126%. At the same time, HDFC Bank scores lowest
in terms of ROE variability with a standard deviation of
1.54146. It can also be noted that ROE of Bank of
Baroda and Punjab National Bank have increased over
the last five years.
H03: There is no significant difference between the
return on equity of SBI, BOB, PNB, HDFC and ICICI
Bank. As the calculated value 2.078125 is lower than
the critical value 2.866081 at 5% level of significance,
the null hypothesis is accepted. Hence, there is no
significant difference between the return on equity of
SBI, BOB, PNB, HDFC and ICICI Bank.
Earnings per share (EPS) – Earnings per share is the
portion of a company's profit that is allocated to each
outstanding share of common stock, serving as an
indicator of the company's profitability. It is often
considered to be one of the most important variables
in determining a stock's value. Higher the EPS, higher
is the profitability of the company. EPS is calculated as:
EPS = net income / average outstanding common
shares

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40 Volume XXVIII January-February 2016 Public and Private Sector Banks in India
 Table 7 - Earnings per Share (EPS)

SBI BOB PNB HDFC ICICI

2014-15 17.55 15.37 16.51 40.76 19.28

2013-14 145.88 105.75 92.32 35.34 84.95

2012-13 206.2 106.37 134.31 28.27 72.17

2011-12 174.46 121.79 144 22.02 56.09

2010-11 116.07 108.33 139.94 84.4 44.73

Average 132.032 91.522 105.416 42.158 55.444

S.D. 64.5813 38.5245 48.1483 22.051 22.6866

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Table 8 - One Way ANOVA for EPS

Source of Variation SS df MS F P-value F crit

Between Groups 26899.29 4 6724.823 2.997448 0.043321 2.866081

Within Groups 44870.32 20 2243.516

Total 71769.61 24

Table 7 shows the earnings per share of the selected
banks. It can be seen that SBI tops in terms of EPS with
a highest average value of Rs.132.032. HDFC stands
lowest with an average EPS of Rs. 42.158. Also the
degree of variability of EPS is lowest in case of HDFC
bank with a standard deviation of 22.051.
H04: There is no significant difference between the
earnings per share of SBI, BOB, PNB, HDFC and ICICI
Bank.
As the calculated value 2.997448 is higher than the
critical value 2.866081 at 5% level of significance, the
null hypothesis is rejected. Hence, there is a significant
difference between the earnings per share of SBI,
BOB, PNB, HDFC and ICICI Bank.
Price Earnings Ratio (P/E Ratio) - The price-to-
earnings ratio (P/E) is a valuation method used to
compare a company's current share price to its per-
share earnings. The P/E ratio, is an equity valuation
multiple. Price-to-Earnings Ratio (P/E) = Market value
per share / Earnings per Share (EPS)

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Volume XXVIII January-February 2016 Public and Private Sector Banks in India 41
 Table 9 - Price Earnings Ratio (P/E Ratio)

SBI BOB PNB HDFC ICICI

2014-15 11.73 8.96 7.69 26.05 15.06

2013-14 9.41 6.1 7.32 22.73 17.33

2012-13 13.22 6.23 4.93 42.72 12.23

2011-12 8.92 5.92 6.25 24.62 13.44

2010-11 24.01 7.92 8.41 26.73 21.18

Average 13.458 7.026 6.92 28.57 15.848

S.D. 5.50213 1.20448 1.21507 7.20648 3.16657

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Table 10 - One Way ANOVA for P/E Ratio

Source of Variation SS df MS F P-value F crit

Between Groups 1570.465 4 392.6161 16.50322 4.00795E-06 2.866081

Within Groups 475.8055 20 23.79027

Total 2046.27 24

From Table 9, it can be seen that HDFC Bank ranks
highest among the selected banks with an average P/E
Ratio of 28.57 and Bank of Baroda stands the lowest. At
the same time, Bank of Baroda has the least degree of
variability in terms of P/E Ratio with a standard
deviation of 1.20448 indicating a greater stability.
H05: There is no significant difference between the
price earnings ratio of SBI, BOB, PNB, HDFC and
ICICI Bank.
As the calculated value 16.50322 is higher than the
critical value 2.866081 at 5% level of significance, the
null hypothesis is rejected. Hence, there is a significant
difference between the price earnings ratio of SBI,
BOB, PNB, HDFC and ICICI Bank.
Dividend Per Share (DPS) - Dividend per share (DPS) is
the total dividends paid out over an entire year
(including interim dividends but not including special
dividends) divided by the number of outstanding
ordinary shares issued. It is the amount of dividends
that the shareholders receive on a per-share basis.
Dividend per share can be calculated using the
formula- DPS = Dividends/ No. of outstanding shares

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42 Volume XXVIII January-February 2016 Public and Private Sector Banks in India
 Table 11 - Dividend per Share (DPS)

SBI BOB PNB HDFC ICICI

2014-15 3.5 3.2 3.3 8 5

2013-14 30 21.5 10 6.85 23

2012-13 41.5 21.5 27 5.5 20

2011-12 35 17 22 4.3 16.5

2010-11 30 16.5 22 16.5 14

Average 28 15.94 16.86 8.23 15.7

S.D. 12.9576 6.71673 8.79309 4.31852 6.16117

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Table 12 - One Way ANOVA for DPS

Source of Variation SS df MS F P-value F crit

Between Groups 1003.658 4 250.9144 2.892865 0.048553 2.866081

Within Groups 1734.712 20 86.7356

Total 2738.37 24

Table 11 shows the dividend per share given by the
selected banking companies. It can be seen that SBI
has declared the highest amount of dividend per share
with an average of Rs.28 over the last five years. And
with a standard deviation of 12.9576 SBI stands at the
most stable position in terms of dividend per share.
H06: There is no significant difference between the
dividend per share of SBI, BOB, PNB, HDFC and ICICI
Bank. As the calculated value 2.892865 is higher than
the critical value 2.866081 at 5% level of significance,
the null hypothesis is rejected. Hence, there is a
significant difference between the dividend per share
of SBI, BOB, PNB, HDFC and ICICI Bank.
Dividend Payout Ratio (D/P Ratio) - The dividend
payout ratio measures the percentage of net income
that is distributed to shareholders in the form of
dividends during the year. This ratio shows the portion
of profits the company decides to keep aside to fund
the operations and the portion of profits that is given
to its shareholders. The dividend payout formula is
calculated by dividing total dividend by the net income
of the company.
Dividend Payout Ratio = Dividend per share (DPS) /
Earnings per share (EPS)

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Volume XXVIII January-February 2016 Public and Private Sector Banks in India 43
 Table 13 - Dividend Payout Ratio (D/P Ratio)

SBI BOB PNB HDFC ICICI

2014-15 19.51 21.42 20.51 19.62 25.93

2013-14 20.56 20.33 10.83 19.38 27.07

2012-13 20.12 23.64 23.51 19.46 27.71

2011-12 20.06 13.86 15.27 19.52 29.41

2010-11 25.84 15.23 15.72 19.55 31.3

Average 21.218 18.896 17.168 19.506 28.284

S.D. 2.33494 3.73452 4.41043 0.08139 1.88195

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Table 14 - One Way ANOVA for D/P Ratio

Source of Variation SS df MS F P-value F crit

Between Groups 372.2311 4 93.05777 8.779279 0.000292 2.866081

Within Groups 211.9941 20 10.59971

Total 584.2252 24

Table 13 shows the dividend payout ratio of the
selected banks. ICICI has the highest D/P ratio of
28.284 followed by SBI at 21.218. Punjab National
Bank has a tighter D/P ratio of 17.168. This shows that
ICICI is returning more money to its shareholders
whereas Punjab National Bank is retaining its earnings.
HDFC stands the most stable in terms of D/P ratio with
least standard deviation of all the other selected
banks.
H07: There is no significant difference between the
dividend payout ratio of SBI, BOB, PNB, HDFC and
ICICI Bank. As the calculated value 8.779279 is higher
than the critical value 2.866081 at 5% level of
significance, the null hypothesis is rejected. Hence,
there is a significant difference between the dividend
payout ratio of SBI, BOB, PNB, HDFC and ICICI Bank.
Compound Annual Growth Rate (CAGR) - The
Compound Annual Growth Rate (CAGR) is the mean
annual growth rate of an investment over a specified
period of time longer than one year. It is a business and
investing specific term for the geometric progression
ratio that provides a constant rate of return over the
time period. It is particularly useful to compare growth
rates from different data sets such as revenue growth
of companies in the same industry.

1
Ending Value Number of Years
CAGR = –1
Beginning Value

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44 Volume XXVIII January-February 2016 Public and Private Sector Banks in India
From Table 15 below, it can be noticed that CAGR in Baroda. Punjab National Bank has the lowest CAGR in
Operating Profit Margin is highest for ICICI Bank. Net Profit Margin, Return on Equity and Earnings per
CAGR in P/E Ratio and D/P Ratio is highest for Bank of Share. CAGR in Dividend per Share is negative for all
the banks.

Table 15 - Compound Annual Growth Rate

SBI BOB PNB HDFC ICICI

OPM -2.36 -7.55 -8.03 -0.83 7.94

NPM 2.53 -18.03 -18.57 5.42 2.93

ROE -3.39 -17.64 -19.09 2.95 8.54

EPS -31.47 -32.33 -34.78 -13.55 -15.49

P/E Ratio -13.35 2.5 -1.77 -0.51 -6.59

DPS -34.93 -27.97 -31.57 -13.48 -18.61

D/P Ratio -5.46 7.06 5.46 0.07 -3.69

Source: Authors' compilation from Bank Markets Performance, http://moneycontrol.com

Porter's Five Forces Model
Bargaining Power of Buyer- In the banking industry,
customers have a high bargaining power as there are a
large number of banks available to provide the same
services and customers can easily switch from one
bank to another. As the growth of loans is declining,
banks have to attract more and more customers as well
as high profile customers by providing them better
facilities at a low cost. The internet has greatly
increased the power of the consumer in the banking
industry. It has greatly increased the ease and reduced
the cost for consumers to compare the prices of
opening/holding accounts as well as the rates offered
at various banks.
Bargaining Power Of Supplier - Because of regulatory
standards of RBI, the banking industry has low
bargaining power. Banks have to meet numerous
regulatory standards stipulated by RBI. No other
business has had as much regulatory protection as the
Indian banking industry. The major suppliers of capital
are customer deposits, financial institutes and loans.
Competitive Rivalry – The Banking industry is facing a
high competition because of presence of public banks,
private banks, foreign banks, co-operative banks and
regional rural banks. Further, a rise in mobile
commerce, emergence of cheaper internet access and
increasing mobile penetration provided by different
service providers has increased the intensity of
competition. Banks must attempt to lure clients away
from competitor banks. They do this by offering lower
financing, higher rates, investment services, and
greater conveniences than their rivals. Banks need to
provide the best and speedy services to retain and
expand customers.
Availability of Substitutes – Plenty of substitutes are
available in the banking industry such as NBFCs,
mutual funds, government securities and T-bills. There

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Volume XXVIII January-February 2016 Public and Private Sector Banks in India 45
 is also the threat of payment method substitutes and
loans are relatively high for the industry. For example,
electronics sellers, jewellers, car dealers, and many
more sellers tend to offer preferred financing on "big
ticket" items to the customers. Often, these non-
banking companies offer lower interest rates on
payments than the consumer would otherwise get
from a traditional bank loan.
Threat of new entrants – Threat of new entrants is
very low in the banking industry because of RBI
regulation. Besides, it is difficult to wean customers
away from existing banks, which have already built
their credibility with them.
Indian banking companies are challenged not only in
terms of loan recovery, but also with how to generate
future business. With loans growth at a decade low,
there is little choice for banks other than chasing the
retail customer, and laying the foundation to acquire
more when the economic expansion gathers pace. The
boom in digital wallet transactions has been triggered
by the rise in mobile commerce, emergence of cheaper
internet access and increasing mobile penetration.
Another big challenge for the banking industry is
inadequate capital although the Government of India
is taking the required steps to face this challenge by
infusing more capital.
Limitations of the Study
1. This research paper studies only the quantitative
aspect of the performance of selected banking
companies and does not study the qualitative
aspects of performance like business models,
competitive advantage, management, corporate
governance etc.
2. The study is limited to financial data for a period of
5 years from 2010-11 to 2014-15.
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46 Volume XXVIII January-February 2016
3. The research paper studies the performance of
only five banks. The analysis can be further done
on the basis of categorization of the banking
industry into public sector, private sector and
foreign banks.
4. This study is based on the analysis of secondary
data. The result and conclusion of this study might
not be accurate due to reliability of the secondary
data and limitation on the variables selected and
the time span considered.
5. This study mainly focuses on selected independent
variables, which may not completely represent the
financial analysis.
Conclusion
This research paper provides insights on the financial
performance of the selected banking companies. SBI
scores the highest average in terms of Earnings per
Share. Also, for SBI the CAGR is negative in all the
parameters except for Net Profit Margin. Bank of
Baroda has positive CAGR in P/E Ratio and D/P Ratio.
PNB has performed the best in Operating Profit
Margin along with a positive CAGR only in D/P Ratio.
HDFC bank scores a higher average than others in Net
Profit Margin, Return on Equity and P/E Ratio, and the
highest CAGR in Net Profit Margin. ICICI Bank has the
highest CAGR in Operating Profit Margin and Return
on Equity, and stands as the best performer in D/P
Ratio.
The selected public sector banks' Net Profit Margins
(NPMs) dropped after 2013 which has impacted their
core profitability significantly. Given the improvement
in assets, the public sector banks are likely to improve
their NPMs. Return on Equity for public sector banks
dropped significantly after 2013. However, it is likely to
improve as going forward, public sector banks' credit
Fundamental Analysis of Selected
Public and Private Sector Banks in India
provisioning could decline if they are able to control
the NPA generation rate. Also, continuous decline in
G-sec yields and surge in equity markets could offer a
marginally higher treasury income to banks in the
coming years. The past few years have seen a
slowdown because of high inflation, depreciation of
the rupee and economic slowdown. However, private
sector banks have still performed better than PSBs in
terms of growth and profitability. The current year is
expected to be a good year for the entire Indian
Banking Sector. Although a series of challenges like
deteriorating asset quality in public sector banks,
accompanying financial inclusion and Basel III
implementation are all lingering issues, the sector is
well-cushioned with a stable government focusing on
increasing investment in infrastructure, innovation in
technology and bringing in productive regulatory
policies. Overall, the Indian Banking industry is
expected to consolidate in the current year in the wake
of future economic growth, changes in banking
regulations and increase in competition from foreign
banks. The Indian economy is on the brink of a major
transformation, with several policy initiatives set to be
implemented shortly. Positive business sentiments,
improved consumer confidence and more controlled
inflation are likely to boost the country's economic
growth. Greater spending on infrastructure, speedy
implementation of projects and continuation of
reforms are expected to provide further impetus to
growth. The banking sector is laying greater emphasis
on providing improved services to their clients and also
upgrading their technology infrastructure in order to
enhance the customer's overall experience as well as
give banks a competitive edge. The Indian banking
industry is expected to witness better growth
prospects in 2016 due to the Government's measures
towards revitalizing the industrial growth in the
country. In addition, RBI's new measures may go a long
way in helping the restructuring of the domestic
banking industry.

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Amanjot Kaur Sodhi is Assistant Professor at CBS, Chandigarh Group of Colleges, Mohali. She has done
M.Com and has teaching experience of 14 years. Her area of specialization is Financial Management,
Securities Analysis and Portfolio Management.

Simran Waraich is Assistant Professor at CBS, Chandigarh Group of Colleges, Mohali. She is a
postgraduate in Commerce, pursuing PhD in Strategic Management. She has 8 years of teaching
experience and her area of specialization is Financial Management and Applied Operations Research.

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48 Volume XXVIII January-February 2016 Public and Private Sector Banks in India