ANALYSIS ON NATIONALISED BANKS

ECONOMETRICS ASSIGNMENT 2
Submitted to

Dr. A.N. SAH

Submitted by Dushyanth Sinha Deepak.S Bharath Dhall Dinesh Manhas Disha Khanduja Dhruv Yadav (R600210018) (R600210014) (R600210013) (R600210017) (R600210016) (R600210015)

Submitted on 18/04/2011

Double Log and Log- Lin Model Analysis for the period 2001 2010 on the Sales Turnover & Net Profit of the following nationalised banks Indian Overseas Bank State Bank of India Indian Bank Syndicate Bank Punjab National Bank

Analysis on Nationalised Banks

An introduction on :
1. Double Log Model:

Linearity in the parameters and the logarithm of the variables can be witnessed in this model. One important feature of this model is that the value of the coefficient determined from the regression of this model can be directly interpreted as the elasticity. This elasticity value is interpreted as the percentage change in the dependent variable for a given percentage change in the dependent variable. Hence this model can be of high importance to study the economic interest between the variables. The elasticity value is assumed to be constant throughout any value of the independent variable. It also gives unbiased estimates to the original model from the sample estimates. The parameters of the original model can be determined by taking antilogarithm of the sample estimates.
2. Log-Lin Model:

Log-Lin Model (also called as Semi-log model) helps to determine the growth rate of one variable with respect to time which is of high interest for economists, businesspeople and governments. Growth rate gives the researcher very valuable economic information on the study of data which we collect. Variations in the model are minimised by taking logarithm of the variable for which growth rate has to be determined while keeping the time in linear terms. The intercept value of the model gives the value of the variable at the start of the initial time period. The above two model will be helpful in analysing the sales turnover and net profit figures of the nationalised banks which have been considered for this assignment. The elasticity between sales turnover and net profit is determined from the double log model. Elasticity will reveal the fact on how much change is being influenced in net profit by a given change in sales turnover at a point of time. And from the Log-Lin model, the growth rate in Net profit and the sales turnover of individual banks will be analysed to have a precise idea on the performance of the bank. Since ten years data have been data, it will be helpful to reduce much variation in the model.

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Analysis on Nationalised Banks

1) Indian Overseas Bank
BSE: 532388 | NSE: IOB | ISIN: INE565A01014 | Banks - Public Sector Indian Overseas Bank (IOB) was founded on February 10th 1937, by Shri.M.Ct.M. Chidambaram Chettyar, a pioneer in many fields - Banking, Insurance and Industry with the twin objectives of specialising in foreign exchange business and overseas banking. IOB had the unique distinction of commencing business on 10th February 1937 (on the inaugural day itself) in three branches simultaneously - at Karaikudi and Chennai in India and Rangoon in Burma (presently Myanmar) followed by a branch in Penang. At the dawn of Independence IOB had 38 branches in India and 7 branches abroad. Deposits stood at Rs.6.64 Crs and Advances at Rs.3.23 Crs at that time. IDRBT (Institute for Development and Research in Banking Technology) conferred the Best Award under Banking Technology to IOB. The award was given for the innovative use of banking applications on INFINET (Indian Financial Network) for the year 2001. Pilot run of Phase I of the Internet Banking commenced covering 34 branches in 5 Metropolitan centres. IOB was one among the first to join Reserve Bank of Indias negotiated dealing system for security dialing online. The Bank has finalised an e-commerce strategy and has developed the necessary internet banking modules in-house. For the first time a Total Branch Automation package developed in-house has been customised in one of the Overseas Branches of the Bank. The bank is listed on The Stock Exchange, Mumbai, National Stock Exchange of India Ltd.
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sales Turnover (in Rs. Crores) 2793.42 3170.69 3485.91 3754.1 3951.05 4406.28 5832.07 7968.25 9641.4 10245.77 Growth rate of sale turnover (%) 13.51% 9.94% 7.69% 5.25% 11.52% 32.36% 36.63% 21.00% 6.27% Net Profit (in Rs. Crores) 115.93 230.21 416.1 512.76 651.36 783.34 1008.43 1202.34 1325.79 706.96 Growth rate in net Profit (%) 98.58% 80.75% 23.23% 27.03% 20.26% 28.73% 19.23% 10.27% -46.68%

Indian Overseas Bank

12000 Rupees in Crores 10000 8000 6000 4000 2000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year 2001 Sales Turnover 2793.42 3170.69 3485.91 3754.1 3951.05 4406.28 5832.07 7968.25 9641.4 10245.77 Net Profit 115.93 230.21 416.1 512.76 651.36 783.34 1008.43 1202.34 1325.79 706.96

1.1 Bar Diagram of Sales Turnover & Net Profit for the period 2001-2010
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Analysis on Nationalised Banks

120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% -20.00% -40.00% -60.00% Sales Growth Rate

Indian Overseas Bank

Growth Rate

2002

2003

2004 7.69%

2005

2006

2007

2008

2009

2010

13.51% 9.94%

5.25% 11.52% 32.36% 36.63% 21.00% 6.27%

Net Profit Growth Rate 98.58% 80.75% 23.23% 27.03% 20.26% 28.73% 19.23% 10.27% -46.68%

1.2 Line plot of Growth rate of sales turnover and net profit
Particulars Elasticity Growth Rate Compounded Growth Rate Particulars Double Log Model Log-Lin Model ( Sales) Log-Lin Model ( Net Profit) R Square 0.6198 0.9426 Multiple R 0.7873 0.9709 Sales Net Profit Turnover 1.268 15.18% 21.85% 16.39% 24.42%

Interpretation

0.7531

0.8678

Sales turnover impacts net profit 78.73% of the times and 61.98% of net profit is explained by sales. 97.09% of times Sales turnover depends the time period & 94.26% of its variation is explained by time variable. 86.78% of times Net profit depends on the time period and 75.31% of its variation is explained by the time variable.

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Analysis on Nationalised Banks

2. State Bank of India
BSE: 500112 | NSE: SBIN | ISIN: INE062A01012 | Banks - Public Sector The State Bank of India, the countrys oldest Bank and a premier in terms of balance sheet size, number of branches, market capitalization and profits is today going through a momentous phase of Change and Transformation the two hundred year old Public sector behemoth is today stirring out of its Public Sector legacy and moving with an agility to give the Private and Foreign Banks a run for their money. The bank is entering into many new businesses with strategic tie ups Pension Funds, General Insurance, Custodial Services, Private Equity, Mobile Banking, Point of Sale Merchant Acquisition, Advisory Services, structured products etc each one of these initiatives having a huge potential for growth.The Bank is forging ahead with cutting edge technology and innovative new banking models, to expand its Rural Banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years. The bank is listed on The Stock Exchange, Mumbai, National Stock Exchange of India Ltd., London Stock Exchange
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sales Turnover (in Rs. Crores) 26138.59 29810.09 31087.02 30460.48 32428 35794.93 39491.02 48950.31 63788.43 70993.92 Growth rate of sale turnover (%) 14.05% 4.28% -2.02% 6.46% 10.38% 10.33% 23.95% 30.31% 11.30% Net Profit (in Rs. Crores) 1604.25 2431.62 3105 3681 4304.52 4406.67 4541.31 6729.12 9121.24 9166.05 Growth rate in net Profit (%) 51.57% 27.69% 18.55% 16.94% 2.37% 3.06% 48.18% 35.55% 0.49%

State Bank of India

80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Rupees in Crores

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Sales Turnover 26,138. 29,810. 31,087. 30,460. 32,428. 35,794. 39,491. 48,950. 63,788. 70,993. Net Profit 1,604.2 2,431.6 3,105.0 3,681.0 4,304.5 4,406.6 4,541.3 6,729.1 9,121.2 9,166.0

2.1 Bar Diagram of Sales Turnover & Net Profit for the period 2001-2010
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Analysis on Nationalised Banks

State Bank of India

60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% Sales Growth Rate Growth Rate

2002

2003

2004

2005

2006

2007

2008

2009

2010

14.05% 4.28% -2.02% 6.46% 10.38% 10.33% 23.95% 30.31% 11.30% 3.06% 48.18% 35.55% 0.49%

Net Profit Growth Rate 51.57% 27.69% 18.55% 16.94% 2.37%

2.2 Line plot of Growth rate of Sales Turnover and Net Profit
Particulars Elasticity Growth Rate Compounded Growth Rate Particulars Double Log Model Log-Lin Model ( Sales) Log-Lin Model ( Net Profit) R Square 0.8719 0.8903 Multiple R 0.9338 0.9436 Sales Turnover Net Profit

1.525 10.59% 17.85% 11.17% 19.55%

Interpretation

0.9496

0.9745

Sales turnover impacts net profit 93.38% of the times and 87.19% of net profit is explained by sales. 94.36% of times Sales turnover depends the time period & 89.03% of its variation is explained by time variable. 97.45% of times Net profit depends on the time period and 94.96% of its variation is explained by the time variable.

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Analysis on Nationalised Banks

3. Indian Bank
BSE: 532814 | NSE: INDIANB | ISIN: INE562A01011 | Banks - Public Sector A premier bank owned by the Government of India Established on 15th August 1907 as part of the Swadeshi movement Serving the nation with a team of over 19000 dedicated staff Total Business crossed Rs.1,74,934 Crores as on 31.12.2010 Operating Profit increased to Rs. 2747.35 Crores as on 31.03.2010 Net Profit increased to Rs.1554.99 Crores as on 31.03.2010 Core Banking Solution(CBS) in all 1819 branches International Presence Overseas branches in Singapore and Colombo including a Foreign Currency Banking Unit at Colombo 240 Overseas Correspondent banks in 70 countries Diversified banking activities - 3 Subsidiary companies Indbank Merchant Banking Services Ltd IndBank Housing Ltd. IndFund Management Ltd A front runner in specialised banking 97 Forex Authorised branches inclusive of 1 Specialised Overseas Branch at Chennai exclusively for handling forex transactions arising out of Export, Import, Remittances and Non Resident Indian business 62 Special SME Branches extending finance exclusively to SSI units The bank is listed on The Stock Exchange, Mumbai, National Stock Exchange of India Ltd.
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sales Turnover (in Rs. Crores) 5618.27 6370.56 6657.72 7006.92 7571.97 8711.51 11364.56 14200.73 17119.06 18751.96 Growth rate of sale turnover (%) 13.39% 4.51% 5.25% 8.06% 15.05% 30.45% 24.96% 20.55% 9.54% Net Profit (in Rs. Crores) 285.1 741.4 1018.89 1338.01 1109.51 1343.22 1420.81 1565.01 2072.42 3021.43 Growth rate in net Profit (%) 160.05% 37.43% 31.32% -17.08% 21.06% 5.78% 10.15% 32.42% 45.79%

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Analysis on Nationalised Banks

Indian Bank
20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Rupees in Crores

2001
285.1

2002

2003

2004

2005

2006

2007

2008

2009

2010

Sales Turnover 5,618.2 6,370.5 6,657.7 7,006.9 7,571.9 8,711.5 11,364. 14,200. 17,119. 18,751. Net Profit 741.4 1,018.8 1,338.0 1,109.5 1,343.2 1,420.8 1,565.0 2,072.4 3,021.4

3.1 Bar Diagram of Sales Turnover & Net Profit for the period 2001-2010

180.00% 160.00% 140.00% 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% -20.00% -40.00% Sales Growth Rate

Indian Bank

Growth Rate

2002

2003

2004
5.25%

2005

2006

2007

2008

2009

2010

13.39% 4.51%

8.06% 15.05% 30.45% 24.96% 20.55% 9.54%

Net Profit Growth Rate 160.05% 37.43% 31.32% -17.08% 21.06% 5.78% 10.15% 32.42% 45.79%

3.2 Line plot of Growth rate of Sales Turnover and Net Profit
Particulars Elasticity Growth Rate Compounded Growth Rate Sales Net Profit Turnover 1.204 14.03% 18.76% 15.06% 20.64%

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Analysis on Nationalised Banks

Particulars Double Log Model Log-Lin Model ( Sales) Log-Lin Model ( Net Profit) R Square 0.6905 0.9459 Multiple R 0.8309 0.9726 Interpretation

0.8056

0.8976

Sales turnover impacts net profit 83.09% of the times and 69.05% of net profit is explained by sales. 97.26% of times Sales turnover depends the time period & 94.59% of its variation is explained by time variable. 89.76% of times Net profit depends on the time period and 80.56% of its variation is explained by the time variable.

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Analysis on Nationalised Banks

4. Syndicate Bank
BSE: 532276 | NSE: SYNDIBANK | ISIN: INE667A01018 | Banks - Public Sector Syndicate Bank was established in 1925 in Udupi, the abode of Lord Krishna in coastal Karnataka with a capital of Rs.8000/- by three visionaries - Sri Upendra Ananth Pai, a businessman, Sri Vaman Kudva, an engineer and Dr.T M A Pai, a physician - who shared a strong commitment to social welfare. Their objective was primarily to extend financial assistance to the local weavers who were crippled by a crisis in the handloom industry through mobilising small savings from the community. The bank collected as low as 2 annas daily at the doorsteps of the depositors through its Agents under its Pigmy Deposit Scheme started in 1928. This scheme is the Bank's brand equity today and the Bank collects around Rs. 2 crore per day under the scheme. The bank is listed on The Stock Exchange, Mumbai, and National Stock Exchange of India Ltd.
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sales Turnover (in Rs. Crores) 2792.18 2882.41 2875.17 3084.85 3757.63 4050.42 6040.07 7906.31 9579.63 10047.17 Growth rate of sale turnover (%) 3.23% -0.25% 7.29% 21.81% 7.79% 49.12% 30.90% 21.16% 4.88% Net Profit (in Rs. Crores) 234.94 250.55 344.13 434.13 402.9 536.5 716.06 848.06 912.82 813.32 Growth rate in net Profit (%) 6.64% 37.35% 26.15% -7.19% 33.16% 33.47% 18.43% 7.64% -10.90%

Syndicate Bank
12,000

Rupees in Crores

10,000 8,000 6,000 4,000 2,000 0 2001 234.94 2002 250.55 2003 344.13 2004 434.13 2005 402.9 2006 536.5 2007 716.06 2008 848.06 2009 912.82 2010 813.32

Sales Turnover 2,792.18 2,882.41 2,875.17 3,084.85 3,757.63 4,050.42 6,040.07 7,906.31 9,579.63 10,047.1 Net Profit

4.1 Bar Diagram of Sales Turnover & Net Profit for the period 2001-2010

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Analysis on Nationalised Banks

Syndicate Bank
60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00%

Growth Rate

2002 3.23%

2003 -0.25%

2004

2005

2006

2007

2008

2009

2010

Sales Growth Rate

7.29% 21.81% 7.79% 49.12% 30.90% 21.16% 4.88%

Net Profit Growth Rate 6.64% 37.35% 26.15% -7.19% 33.16% 33.47% 18.43% 7.64% -10.90%

4.2 Line plot of Growth rate of Sales Turnover and Net Profit
Particulars Elasticity Growth Rate Compounded Growth Rate Particulars Double Log Model Log-Lin Model ( Sales) Log-Lin Model ( Net Profit) R Square 0.8634 0.9188 Multiple R 0.9292 0.9585 Sales Turnover Net Profit

0.899 16.41% 16.07% 17.84% 17.44%

Interpretation

0.9414

0.9703

Sales turnover impacts net profit 92.92% of the times and 86.34% of net profit is explained by sales. 95.85% of times Sales turnover depends the time period & 91.88% of its variation is explained by time variable. 97.03% of times Net profit depends on the time period and 94.14% of its variation is explained by the time variable.

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Analysis on Nationalised Banks

5. Punjab National Bank
BSE: 532461 | NSE: PNB | ISIN: INE160A01014 | Banks - Public Sector With over 56 million satisfied customers and more than 5000 offices including 5 overseas branches, PNB has continued to retain its leadership position amongst the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card, debit card; bullion business; life and non-life insurance; Gold coins & asset management business, etc. Backed by strong domestic performance, the Bank is planning to realize its global aspirations. Bank continues its selective foray in international markets with presence in 9 countries, with 2 branches at Hong Kong, 1 each at Kabul and Dubai; representative offices at Almaty, Dubai, Shanghai and Oslo; a wholly owned subsidiary in UK; a joint venture with Everest Bank Ltd. Nepal and a JV banking subsidiary DRUK PNB Bank Ltd. in Bhutan. Bank is pursuing up-gradation of its representative offices in China & Norway and is in the process of setting up a representative office in Sydney, Australia and taking controlling stake in JSC Dana Bank in Kazakhstan. The bank is listed on The Stock Exchange, Mumbai, National Stock Exchange of India Ltd.
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sales Turnover (in Rs. Crores) 5863.48 6647.87 7485.01 7778.94 8459.85 9584.15 11537.48 14265.02 19326.16 21422.09 Growth rate of sale turnover (%) 13.38% 12.59% 3.93% 8.75% 13.29% 20.38% 23.64% 35.48% 10.85% Net Profit (in Rs. Crores) 463.64 562.39 842.2 1108.69 1410.12 1439.31 1540.08 2048.76 3090.88 3905.35 Growth rate in net Profit (%) 21.30% 49.75% 31.64% 27.19% 2.07% 7.00% 33.03% 50.87% 26.35%

25,000 Rupees in Crores 20,000 15,000 10,000 5,000 0 2001 463.64

Punjab National Bank

2002 562.39

2003

2004

2005

2006

2007

2008

2009

2010

Sales Turnover 5,863.48 6,647.87 7,485.01 7,778.94 8,459.85 9,584.15 11,537.4 14,265.0 19,326.1 21,422.0 Net Profit 842.2 1,108.69 1,410.12 1,439.31 1,540.08 2,048.76 3,090.88 3,905.35

5.1 Bar Diagram of Sales Turnover & Net Profit for the period 2001-2010
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Analysis on Nationalised Banks

60.00% 50.00% Growth Rate 40.00% 30.00% 20.00% 10.00% 0.00%

Punjab National Bank

2002

2003

2004

2005

2006

2007

2008

2009

2010

Sales Growth Rate

13.38% 12.59% 3.93%

8.75% 13.29% 20.38% 23.64% 35.48% 10.85% 7.00% 33.03% 50.87% 26.35%

Net Profit Growth Rate 21.30% 49.75% 31.64% 27.19% 2.07%

5.2 Line plot of Growth rate of Sales Turnover and Net Profit
Particulars Elasticity Growth Rate Compounded Growth Rate Particulars Double Log Model Log-Lin Model ( Sales) Log-Lin Model ( Net Profit) R Square 0.9253 0.9509 Multiple R 0.9619 0.9751 Sales Net Profit Turnover 1.473 14.34% 22.16% 15.42% 24.80%

Interpretation

0.9685

0.9841

Sales turnover impacts net profit 96.19% of the times and 92.53% of net profit is explained by sales. 97.51% of times Sales turnover depends the time period & 95.09% of its variation is explained by time variable. 98.41% of times Net profit depends on the time period and 96.85% of its variation is explained by the time variable.

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Analysis on Nationalised Banks

Conclusion:
Short form IOB SBI IB SBI PNB Growth Rate Sales 15.18% 10.59% 14.03% 16.41% 14.34% Net Profit 21.85% 17.85% 18.76% 16.07% 22.16% Compounded Growth Rate Net Sales Profit 16.39% 11.17% 15.06% 17.84% 15.42% 24.42% 19.55% 20.64% 17.44% 24.80%

Bank Indian Overseas Bank State Bank of India Indian Bank Syndicate Bank Punjab National Bank

Elasticity

1.268 1.525 1.204 0.899 1.473

Growth in Sales Turnover

20.00% Growth Rate 15.00% 10.00% 5.00% 0.00% Growth rate IOB 15.18% 16.39% SBI 10.59% 11.17% IB 14.03% 15.06% SBI 16.41% 17.84% PNB 14.34% 15.42%

Compounded Growth Rate

Comparison of Growth rate in Sales Turnover among five banks

Growth in Net Profit

30.00%
Growth Rate 20.00% 10.00% 0.00% Growth rate Compounded Growth Rate IOB 21.85% 24.42% SBI 17.85% 19.55% IB 18.76% 20.64% SBI 16.07% 17.44% PNB 22.16% 24.80%

Comparison of Growth rate in Net Profit among five banks

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Analysis on Nationalised Banks

Based on the analysis made on the five nationalised banks, the value of (slope) of DoubleLog Model and Log-Lin Model Regression Analysis are interpreted in terms of elasticity and growth rate respectively. The compounded growth rate has further been determined from the interpreted growth rate value by using the formula: Compounded growth rate = {[Antilog (Growth Rate)]-1} x 100% The following are the understandings from the analysis done on the five nationalised banks. i. Punjab National Bank has the highest growth rate and compounded growth rate in Net Profit with even less growth in sales but with a second highest elasticity among all five banks considered. It can be assumed that besides sales there is some other investments which the bank makes yielding more net profit which could be one possibility. Time variable has a significant high influence on the banks net profit as per the values. ii. Indian Overseas Bank is recording the second highest growth rate in terms of net profit and its highly elastic with respect to its respective sales turnover. Time variable has significantly less influence on both the sales and net profit of the bank. iii. Indian Banks growth rate records the third highest with Sales turnover is highly influenced & explained by time variable but comparatively less influenced & explained by time variable. iv. State Bank of India has the fourth highest growth rate in net profit but it is recorded to be highly elastic in nature with respect to changes in sales turnover. Time variable highly influences and explains the net profit and sales turnover of the bank. v. Syndicate Bank is recorded to have a stable growth pattern in net profit and sales turnover with less elasticity between them. Time variable has greater influence over the net profit and sales turnover of the bank. All the banks, except Syndicate Bank, considered for the analysis are showing high elastic nature of net profit with respect to its sales turnover. Syndicate Bank records a stable growth with less risk but on the other hand Punjab National Banks records high growth rate in net profit with high risk (i.e. elasticity) as well.

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